Having failed to lift vehicle demand significantly during the first phase of the "eco-car" programme, the Thai government is wary of implementing a second scheme, while manufacturers of such vehicles are urging the administration to rethink its strategy to expand its definition of "eco-friendly" vehicle types.
IHS Automotive perspective | |
Significance | Manufacturers of "eco-cars" in Thailand have called for a change in the government-supported eco-car programme to include more vehicle types. |
Implications | Thai OEMs believe that the inclusion in the scheme of other eco-friendly vehicles such as electric vehicles (EVs) and hybrids would offer more choice for car buyers in Thailand, while it would also allow them to increase exports to overseas markets. |
Outlook | In an indirect attempt to respond to the automakers' pleas, the Thai prime minister has expressed concern over the negative impact of the eco-car programme on the economy. |
"Eco-car" manufacturers in Thailand are urging the government to consider making changes to the popular eco-car scheme in an attempt to spur vehicle demand in the domestic market. According to local publication the Bangkok Post, Pitak Pruittisarikorn, the COO of Honda Automobile Thailand, said, "The [Thai] eco-car scheme, in fact, does not support all automobile makers… The Thai automotive industry has developed for many decades to have a massive production for all segments covering pickup trucks, passenger cars and eco-cars, although neither domestic nor export demand is growing as expected [following implementation of the eco-car programme]." Meanwhile, Hidesuke Takesue, president of Mazda Sales Thailand, commented, "Eco-car models under the second scheme were not exciting, as global vehicles already met the Euro 5 standard and carbon dioxide [CO2] emission of less than 100 grams per kilometre. The future trend of the [Thai as well as global] automotive industry is electric vehicles [EVs]." Morikazu Chokki, president and CEO of Mitsubishi Motors Thailand, said, "The new eco-car scheme was unlikely to become as successful as the pickup truck segment since many global countries could now produce small vehicles. Mitsubishi has an eco-car facility in Thailand, but we are ready to adjust to deal with the Thai government's future policy, although the second phase of the eco-car scheme would not be promoted anymore". An unnamed executive at a Thai eco-car manufacturer said, "Although the second phase is aimed at the foreign market, we're not quite sure whether the global economy will bounce back enough to meet rising supply from Thailand for such vehicles. Besides, domestic consumption is unlikely to be strong enough."
PM voices concerns about negative effects of eco-car programme
Separately, Thai prime minister Prayut Chan-o-cha has expressed concerns over the negative impact of the eco-car programme on the economy. "The Industry Ministry should carefully consider whether the scheme will cause any harm to the economy. It's tough to sell cars at home now and even tougher to sell cars abroad, as the global economy remains [uncertain]", he said, adding that the ministry should ensure the policy does not create an influx of new small cars. The prime minister called for co-operation between the Industry Ministry and the Board of Investment [BoI] to ensure that the second phase did not repeat the failure of the first phase. The Thai prime minister remarked that the populist policy had failed to boost domestic car sales or indeed the entire economy but had instead triggered an increase in household debt and led to a glut of small cars in the domestic market.
In response to the prime minister's concerns, Industry Minister Chakramon Phasukvanich said, "The second phase [of the eco-car programme] is unlikely to make any adverse impact on the Thai market, as production will be mostly for export. But we also expect local demand will rebound, as most people tend to change their cars every five years and this would help to raise domestic demand enough to absorb the increased supply from the second [phase]. He [the prime minister] was right about artificial demand caused by the first-time car-buyer policy, which hurt the economy. However, we also believe that real vehicle demand at home will increase in the near future."
An overview of the Thai eco-car scheme – Phase I and II
The Thai government began the first phase of the eco-car programme in July 2007, with total manufacturing volumes anticipated to reach 585,000 units within the first five years of the scheme (see Thailand: 12 July 2007: Thai Government to Begin Issuing Eco-Car Licences Next Year). The first phase of the programme defined eco-cars as vehicles powered by gasoline (petrol) engines of 1.3 litres or below, or diesel engines of 1.4 litres or below, capable of achieving fuel consumption of 5 litres per 100 kilometres. They also had to conform to Euro IV standards or emit less than 120 grams of CO2 per kilometre. In addition, there were other stipulations; for instance, manufacturers had to build 100,000 units a year by the fifth year of operation. Vehicles considered eco-cars in the first phase were eligible for a lower sales tax rate of 17%, almost half the amount currently paid when buying a vehicle under 2000cc. Honda, Toyota, Nissan, Mitsubishi, and Suzuki applied for the first phase of the project and received exemptions from corporate tax and import duty for machinery and equipment, and as much as a 90% reduction in import duties for raw materials and finished parts. The automakers earmarked at least 50% of their eco-car production for export, according to the Thai BoI website.
The second phase of the eco-car programme was announced in 2013, with the aim of manufacturing 1.58 million units (see Thailand: 27 August 2013: Thai eco-car project's second phase requires automakers to invest THB6.5 bil.). The minimum capacity for eco-car models approved in the second phase was set at 100,000 units a year within five years of production, while excise duty on an eco-car was to be levied at 14%, while those compatible with Euro Vemission standards/E85 could enjoy a 12% rate. New phase-two eco-cars must emit no more than 100 grams of carbon dioxide per kilometre, down from 120 grams per kilometre for existing eco-car models. Fuel efficiency must be 4.3 litres per 100 km, up from 5 litres per km in the first phase. Engine displacement should not exceed 1.3 litres for gasoline models and 1.5 litres for diesel models. Ten automakers, including the five existing eco-car manufacturers, applied for the second phase of the scheme and received approval from the BoI last year.
Outlook and implications
Despite being the largest producer of vehicles in the Association of Southeast Asian Nations (ASEAN) region, Thailand's automotive industry is in a precarious state. The Thai government ran a buyers' incentive scheme offering a tax rebate of up to THB100,000 (USD3,071) for first-time car buyers, which ended on 31 December 2012. Driven primarily by this, Thai vehicle sales and output witnessed unprecedented growth that year (see Thailand: 22 February 2013: Thai vehicle sales surge more than 80% y/y in 2012). The buyers' incentive scheme, originally meant as both an incentive for people to switch from motorbikes to cars and a measure to boost car sales in the then flood-ravaged country, complemented the eco-car programme meant for car manufacturers at that time. The buyers' incentive scheme prompted many low-income consumers to overstretch their finances and order their first car, only to default on payments later. Jessada Thongpak, a senior Bangkok-based analyst at IHS Automotive, says, "The tax refund scheme not only distorted the auto market, it also used the national budget to compensate losses from excise tax." According to IHS data, real household spending growth jumped to a 17-year high of 6.7% in 2012.
The economy was unable to cope with the sudden boom created by the scheme, and matters began to worsen in 2014 amid unstable political conditions. The military declared a coup in May 2014 and took control of the country, but consumer and business confidence are yet to rebound to normal levels. The government is unlikely to offer any additional incentives to spur domestic vehicle demand, despite requests from the country's leading automakers (see Thailand: 9 October 2014: Toyota urges Thai government to provide stimulus measures to boost sales and Thailand: 12 March 2015: Toyota raises concern over declining Thai sales). Leaving aside the buyers' incentive scheme, the eco-car scheme has actually helped Thailand emerge as a major vehicle manufacturing and export base in the Southeast Asian region. Oracha Sakunbunma, another Bangkok-based analyst at IHS Automotive, explains, "The eco-car scheme is very good policy in view of increasing local investment, giving more benefit to consumers to have an affordable car with low maintenance, and it also addresses long-term environmental concerns. The eco-car programme is considered a shortcut to step up the performance level of Thai-made vehicles to be able to tap into the global market. Focusing on development of EV/hybrid cars is a global trend, although Thailand – being a developing county – is moving towards new vehicle trends at a slow pace as there is still a need for more EV/hybrid infrastructure and stations to be ready. Nevertheless, to reach the criteria of 100,000 units per annum of eco-cars within the first four years is quite a challenge as the recent domestic vehicle market has been quite tough."
Thailand registered a 23.5% year-on-year (y/y) decline in vehicle production during 2014 and a 33.7% y/y fall in sales to 881,832 units (see Thailand: 23 January 2015: Thai automotive industry slumps in 2014, Toyota explores new growth markets). However, IHS Automotive is optimistic that total vehicle sales in Thailand will reach 1 million units in 2015 thanks to increased political stability, the government's infrastructure investment policy, the economic recovery, a low interest-rate policy, and the low sales base of 2014, as evident in the January data (February data were not available at the time of writing; see Thailand: 10 March 2015: January data indicate recovery under way in Thai automotive industry).