Cover Story

The Asian automobile industry is changing. While carmakers in advanced Continuous Evolution and Change: countries falter, Chinese manufacturers are growing rapidly, contributing to the expansion of the Asian auto market as a whole, and in the process Asian Auto Industry Stands bringing about not only quantitative changes but also qualitative changes. Chi- nese car carmakers have advanced into Southeast Asia while Western com- at Center of Global Stage panies have also set foot in ’s market. Meanwhile, ASEAN is emerging as the next auto manufacturing base after China. Let us take a look at the present and future of the rapidly changing Asian auto market.

Shim Sang-hyung, Chu Ji-mi Global Carmakers to Capitalize on China as a Platform, Asian Car Market Undergoing Change _P12

Ryu Ki-chun China is Now the World’s Largest Car Market and the Focus of Global Strategies _P20

Cho Chul Southeast Asia Emerges as a Post-BRICs Auto Market _P28 Cover Story | Changes in Asia’s Auto Production System Research Institute

Shim Sang-hyung _ Senior Principal Researcher, POSCO Research Institute [email protected] Chu Ji-mi _ Researcher, POSCO Research Institute [email protected]

Global Carmakers to Capitalize on Expansion Strategies in Asia by Country China as a Platform ※Automobile production and export statistics for 2012

Asian Car Market Undergoing Change Chinese carmakers enter the Southeast Asian market Japanese companies •: Malaysia (10,000 units), strengthen strategies for the Philippines (10,000 units) Chinese market •: Indonesia (30,000 units) •Shift to local sourcing and •SAIC Motor: Thailand (50,000 units) active technology transfer •Great Wall: Thailand (50,000 units) Global automakers based in China •SGMW: India (10,000 units), 994 Indonesia (40,000 units) •Shanghai Volkswagen: Indonesia The leading management guru Peter Drucker (50,000 units) 1,927 456 Korea 480 called the automobile industry “the industry of in- 317 Japan dustries.” That may be because the car industry China has significant economic importance and impact and represents the development level of a coun- try’s manufacturing industry. Autos are closely linked to a wide range of industries from steel, chemicals, and textiles to electricity and electron- ics, machinery, and finance. Therefore, the auto India industry contributes significantly to job creation. Southeast 101 The industry accounts for 12% of total employment Asia Japanese companies control 85% of the Southeast Asian market and continue to in Japan and France while it comprises 7-8% of to- 415 416 expand production capacity •Japanese companies consider Southeast 64 120 tal employment in the U.S. and Korea. That is why Asia a manufacturing base for low-cost emerging countries are eager to promote the auto models designed for emerging markets industry. Korean and Japanese Because a car is composed of nearly 30,000 companies export compacts to Europe, the Middle East, components, it is important for car companies to and Africa via India use auto parts that are competitive in terms of SGMW produces car models cost, quality, and delivery time. In addition, auto developed in China companies must have the ability to establish and operate complex systems in which those parts are assembled, which is one of the reasons why ad- Production Export vanced countries are leading the global auto in-

dustry. Stock Shutter

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Asia accounts for more than half of global car production. The Asian auto industry is undergoing structural changes as China grows.

Automobile 795.1 China’s auto output and sales. China’s car produc- 800 (47,199) Ownership per Global Automobile Production by Region tion increased 10 million units within only four 1,000 people (2011) years from 9.3 million in 2008 to 19.27 million in 597 ※ ( ): per capita GDP, USD, 2011 600 (42,831) 559.7 57.01 million units (2001) 2012. Considering that global auto production (Unit : Vehicle) (40,152) 0.1 Middle East grew 13.34 million units from 70.76 million to 84.1 376.4 Africa million during the same period, China contributed 400 370.4 (20,757) (8,373) to 75% of the total increase. During 2009-2010, the

31.2 35.2 Chinese government attempted to promote do- 200 164 Asia (4,608) Europe mestic sales by offering subsidies for car purchas- 69.4 69.6 % es, leading to sharp increases in China’s compact (4,428) 19.4 (2,946) 29.4 (2,140) 0 (2,946) car sales. This provided Chinese carmakers with 31.7 Korea Japan China India Indonesia Thailand Malaysia Philippines U.S. Germany Americas growth momentum. But since the subsidy pro- gram expired in 2011, car sales have declined. However, China’s market for compact has locally while minimizing technology transfer. 69.22 million units (2006) become one of its largest markets as young and 0.8 Structural changes fueled by However, global companies have begun to ex- Middle East middle class urban dwellers have chosen com- Asia’s rapid growth: pand production facilities in China significantly Africa pacts as their first vehicles. Even though carmak- Asia accounts for 50% of global and have also transferred their R&D operations. ers have been able to sell their products to those auto production Their efforts to localize parts sourcing have also 27.5 living around cities and in rural areas without rely- allowed them to transfer car component tech- Americas ing on sophisticated strategies thanks to Chinese % 40.7 Over the past four or five years following the 2008 nologies to China. Asia government subsidies, they may need to differenti- global financial crisis, the world auto industry has In the meantime, Chinese local carmakers and 30.9 ate the designs and brands of their compact cars seen emerging countries, including China, rise U.S. and European companies have recently ad- Europe as they are being sold to China’s urban middle sharply while advanced countries have fallen. vanced into the Southeast Asian auto market, class. However, with the U.S. and Japanese economies where Japanese firms have long been active and Global joint ventures, which specialize in sell- showing signs of recovery since last year, carmak- have built high entry barriers. The structure of divi- ing mid-size and large cars to higher income 84.10 million units (2012) 0.7 ers in advanced countries are expected to grow sion of labor in the ASEAN region, which was Middle East groups, have pushed ahead with the production Africa while those in emerging markets are likely to see formed by Japan, is likely to change as well. India and development of compact cars while increas- slower growth in the short term. has also emerged as an important export base for ing local production of luxury vehicles. As global Currently, Asia accounts for more than half of global car companies attempting to supply prod- 23.6 car companies must compete with Chinese local Europe global auto output. Over the past five years, ucts to the Middle East and Africa. % 51.9 automakers in the compact car market, they along with quantitative growth, a number of Asia should pursue cost competitiveness, and to that changes have occurred in Asia’s auto produc- 23.8 end, should localize parts sourcing. , which tion and competition among automakers. In the Global carmakers eager to tap into the Americas is set to launch new sedans and at past, advanced carmakers entered China in the Chinese compact car market prices approximately CNY 20,000 lower than those form of joint ventures and used the Asian coun- Source: OICA, POSRI of existing models in China, plans to raise the pro- try only as a manufacturing base to sell products We should take notice of the sharp increases in portion of local parts supply from 60% to 98% in an

15 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 16 Cover Story | Changes in Asia’s Auto Production System Research Institute

Kia Motors attends the Wuhan Motor Show 2013 held last October in Wuhan, China. (JoongAng Photo)

effort to secure cost competitiveness. and Honda have also increased compact car produc- tion with a goal of using 100% local automobile parts. Since discovered that 40% of its sales came from the Asia-Pacific region largely due to increased sales in China, it has targeted mid- and low-priced cars through SAIC-GM-Wuling (SGMW), a between SAIC Motor, General Motors, and Liuzhou . The U.S. carmaker aims to increase its production ca- pacity to two million units per year by the end of 2015 by expanding existing plants in Liuzhou, a city in the Zhuang Autonomous Region, and building new plants in . With the establishment of R&D centers, plants located in Li- uzhou are expected to become comprehensive passenger car manufacturing bases, producing and developing cars and procuring parts. Ford is also developing low-priced compact cars in its Chongqing plants while investing in the develop- ment of luxury models in Hangzhou.

Intense competition in the Chinese market: Local companies focus on exports while global companies begin to transfer technology

Global carmakers eye China’s compact car market, Competition among global auto companies and Chinese companies target overseas markets their respective China strategies have led to mean- ingful changes in the Asian car market. Since glob-

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al carmakers have joined the competition for the market. tial car components from Japan. Realizing the im- significantly while conditions in advanced coun- Chinese compact car market, vehicle prices have It is noteworthy that GM is applying the com- portance of local sourcing, Japanese companies tries have remained stagnant, leading global auto fallen and profits have shrunk. Local automakers, pact car models developed by its Chinese joint began to promote local auto parts suppliers. The companies to transfer technology and auto parts which lack production management knowhow venture partner SGMW to GM India, while SGMW need to find local parts manufacturers became manufacturing bases to China. And global compa- and brand power, have managed to compensate has taken the lead in making new investments in even more urgent when the Great Tohoku Earth- nies now plan to enter Southeast Asia and India for their low profits from the domestic market by Indonesia. As global companies have attempted to quake in 2011 prevented Japanese factories from with compact car models and production systems increasing exports. A manager at Lifan Motors, a use their experiences in China, China has served shipping auto parts to Southeast Asia. that they have developed in China. private automaker based in Chongqing, said prof- as a platform for those companies. Since then, Japanese car companies have car- Japanese auto companies, which made in- its from the Chinese market have fallen close to has begun to export auto parts produced in China ried out reform and pursued innovation. For ex- roads into Southeast Asia earlier, formed the re- zero as Lifan competes to sell its products at the to Europe. With increased SKD (Semi Knocked ample, Toyota has attempted to overhaul its parts gional structure for division of labor, and initially lowest prices; instead the company makes profits Down) and CKD (Completely Knocked Down) ex- supply system by decentralizing parts manufactur- assembled key auto components imported from from exports to Central and South America, Cen- ports by Chinese and global auto companies, auto ing and applying the same auto parts throughout Japan, have also changed their strategies. They tral Asia, and Southeast Asia. A spokesperson for parts exports have increased accordingly. From its product lines. This is part of an effort to manu- have come up with more sophisticated plans to Sichuan Auto based in Chengdu said selling cer- January to November 2013, auto component ex- facture products without interruption even when promote Southeast Asia as a compact car manu- tain low-priced models has caused a loss of CNY ports grew as much as 50% compared to the same unexpected events occur. To this end, Toyota has facturing base for all emerging markets while 30,000 per unit. Against this backdrop, China’s car period in the previous year, and this trend is ex- also begun to transfer technology to overseas fac- capitalizing on Southeast Asia’s growing de- exports soared to 850,000 units in 2011 or more pected to continue. tories and promote local parts suppliers. It plans mand. than 50% compared to the previous year, and to to introduce eight new models by In the meantime, Thailand, having absorbed one million units in 2013. 2015 designed specifically for emerging markets, advanced technology and knowhow from Japa- Chinese local car companies have increasingly Japanese Carmakers determined to and produce them in Thailand, India, and Indone- nese car companies while serving as a Southeast built assembly plants overseas. Large Chinese au- retain dominance in Southeast Asia sia. The company also aims to procure 100% of Asian base for Japanese companies, has expand- tomakers that have been entering Central and parts locally to be cost competitive while enhanc- ed its supply chain to Cambodia and Vietnam to South America since 2008 have turned their eyes Japanese automakers are taking the offensive ing R&D operations. Nissan is also set to launch its avoid high labor costs. India, Indonesia, and Thai- to Southeast Asia. Chinese car manufacturers, in- against Chinese car companies in the Southeast low-cost Datsun model, 90% of whose parts are land maintain leadership in the auto industry as cluding Great Wall, Chery, Geely, and Shanghai Asian market where they have already built pro- supplied locally, in India, Indonesia, and Russia. they have implemented policies to promote do- Corporation (SAIC Motor) duction bases. Japanese companies have operat- Japanese car companies are working to retain mestic industries and carried out environment- plan to establish small-scale assembly plants that ed manufacturing bases in Southeast Asia since their dominance in the Southeast Asian market friendly projects. can produce 10,000 to 50,000 units per year in the late 1950s. They have built local assembly lines with a goal of expanding regional production ca- Asia’s automotive market is projected to see Thailand, Indonesia, and Malaysia. Chinese car- to respond to Southeast Asian demand while im- pacity by 1.5 million units by the end of this year, further changes. It is high time for Korean car- makers have established assembly lines in South- porting key auto components from Japan. Most compared to where it stood in 2011. makers, the auto parts industry, and upstream east Asian countries, which impose high tariffs on Japanese car companies have established branch- and downstream industries to respond to chang- imported cars and encourage them to assemble es and final assembly lines in Thailand and opti- es in the Asian auto market and find ways to and sell cars in the region using low-priced Chi- mally distributed auto parts manufacturing bases Korean automakers and related take advantage of these changes together. With- nese auto parts. This strategy has allowed Chinese in other Southeast Asian nations, including Indo- industries must jointly respond out a doubt, the auto industry is a key industry companies that have just begun operating over- nesia, Malaysia, and the Philippines. However, to changes in the Asian Market that accounts for approximately 10% of manufac- seas to save time and costs required to stabilize when the Thai baht slumped in 2007, it dealt a turing production, employment and exports, re- parts supply and have the opportunity to study the blow to Japanese carmakers that imported essen- Since 2008, the Chinese auto market has grown spectively.

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Ryu Ki-chun _ Deputy Director, Hyundai Motor Research Institute for the China Management [email protected]

China is Now the World’s Largest Car Market and the Focus of Global Strategies

Last year, China became the first country to see attempted to enter global markets using China domestic auto sales exceed 20 million a year with as a platform. Meanwhile, Chinese local carmak- 21.98 million units sold in 2013. China has been the ers have advanced into overseas markets, in- world’s largest car market since 2009, currently ac- cluding South America, Africa and the Middle counting for more than a quarter of global auto East. For global carmakers, China’s importance sales. As the Chinese auto market is expected to as the center of global strategies increase see steady growth, its position will strengthen fur- further. ther. The Chinese market contributes to more than 20% of passenger car sales of major global auto- makers, including Volkswagen (VW), General Mo- U.S. and European companies: tors (GM), and Nissan. China has already become Expand production capacity, unveil an essential market for all global carmakers. As new products they bet their fate on the Chinese car market, even fiercer competition is expected. China’s top auto seller is Volkswagen. In 2013, the Since 2000, the Chinese market has grown German automaker sold more than three million much more rapidly than expected and is likely vehicles in China. That year, VW’s sales in China to grow further. China’s growth is projected to comprised 34% of its total global sales, up from remain at around 7% despite the recent econom- 28% in 2010. Volkswagen plans to expand produc- ic slowdown. The Chinese car market has high tion capacity and launch new models in China. It

With rapid growth of the Chinese automobile market, a series of motor shows have been held in China’s major cities, including Beijing, potential as car ownership in the country is still has continued to build new plants in the country Shanghai, Guangzhou, and Wuhan. (JoongAng Photo) low. Recently, advanced global carmakers have with a view to producing four million cars a year

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GM is attempting to promote China as an export base while capitalizing on China’s demand for automobiles.

GM is more active than its competitors in tar- the Senkaku/Diaoyu Islands. From the second half geting overseas markets via China. The U.S. auto- of 2012 when the disputes began to intensify, Japa- maker plans to promote China as a major export nese companies’ car sales began to drop sharply. base. It exported more than 100,000 vehicles from Sales fell by up to 50% during September to Octo- China in 2013 and plans to expand exports to ber 2012 compared to the same period in the pre- 300,000 units a year within the next seven years. vious year. Japanese automakers were forced to In addition, GM is working with its joint venture suspend factory operations to reduce production partner Shanghai Automotive Industry Corpora- while lowering car prices, compensating car own- tion (SAIC) to enter the Indian and Southeast ers for damage and injuries incurred during the 2,198 Asian markets. anti-Japanese protests, and implementing a range Ford has not been so successful in China, but of marketing campaigns aimed at easing consum- by 2018, while also seeking potential factory sites Automobile Sales in China its business is also growing rapidly with new proj- er anxiety. In addition, all three auto companies not only in the northern and eastern regions but Industry Demand (Unit: 10,000 vehicles) ects and strengthened strategies. The company announced mid- and long-term plans to focus on also in the southern and western areas. Volkswa- sold 940,000 vehicles in 2013, overtaking Toyota as compacts and environment-friendly cars, especial- gen has built plants in Foshan, Guangdong Prov- China’s fifth-largest automobile seller. Ford plans ly hybrids, while also targeting the Chinese market 1,931 ince, and Urumqi, Xinjiang Uygur Autonomous to expand its annual production capacity to 1.2 more aggressively with enhanced localization 1,851 Region, and is building a new plant in Changsha, 1,806 million cars in China within the next two years, strategies. Hunan Province. and expects to see 40% of its global sales come Toyota has strengthened its compact Volkswagen will also diversify products avail- from China by 2020. line-up with the launch of the new able in the Chinese market. It plans to expand its and Vios while promoting its corporate slogan in line-up from 70 models to 90 by 2015, producing the Chinese market, “yundong (雲動),” which 30 of them in China. The company already intro- 1,364 Japanese companies: means “movement upon the clouds” in an effort to duced to the global market 60 new and updated Work with local suppliers, focus on localize hybrid car technology in China by 2015. models in 2013, of which 29 were launched in Chi- hybrid vehicles The Japanese automaker has opened an R&D na, indicating how much the carmaker empha- 938 center in Changshu, a city near Beijing and set up sized the Chinese market. 879 In 2013, the combined sales of Japan’s big three a joint venture to produce hybrid batteries. Toyota In the Chinese market, GM is competing with carmakers—Toyota, Honda, and Nissan— in China aims to produce hybrid batteries and vehicles lo- Volkswagen to win the No. 1 spot. GM’s annual 722 stood at 2.94 million vehicles, a 17% increase from cally from 2015. car sales increased 11.4% to 3.17 million units in the previous year, and all three car companies Honda plans to unveil 12 new models for the 576 2013, recording double-digit growth for two con- 507 showed signs of recovery. The recovery might Chinese market with a sales goal of 1.3 million ve- secutive years. GM aims to expand production 439 have been caused by increased sales after the hicles in 2015. The company aims to produce hy- capacity to five million units in China. To that end, 325 three automakers launched new vehicles in 2013. brid cars in China in the next three years by it plans to invest USD 11 billion in the construc- However, it might also be attributed to the base ef- adopting new technologies and localizing R&D tion of four auto manufacturing plants. GM says it fect after China’s anti-Japanese sentiment in 2012 operations. It has aggressively introduced technol- is determined to pursue sustainable growth based resulted in decreased auto sales. ogies to ensure environmental protection, safety, on its aggressive investment in products, plants 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Japanese carmakers had a tough time due to and comfort under the concept of “FUNTEC”. and people (3P). Source: China Association of Automobile Manufacturers (CAAM) Tokyo’s territorial disputes with Beijing over the Nissan has been most active in conducting lo-

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Competition in the Chinese market will grow more intense and the dynamics of the global auto industry will change.

calization strategies in China. It plans to build new vious year. Those local companies have set their plants and release 30 models in the Chinese mar- growth targets for this year between five and ten ket with a sales target of 2.3 million units in 2015. percent or higher. To secure a manufacturing base in northeastern Chinese local car companies are more aggres- China, Nissan is building a plant in Dalian, which sive in entering overseas markets than joint ven- will start operating this year. Once completed, the tures because they should compensate for de- plant will enable Nissan to increase its passenger creasing sales in the domestic market and car production in China to 1.5 million units. improve their respective brand images. BYD is considering entering the U.S. auto market in the second half of 2015. BYD’s flagship model is likely Local companies: to be its plug-in hybrid compact sedan Qin (秦), Improve brand image and technology, which has been recently released. It also tested its expand to overseas markets electric buses in Britain, Colombia, and Brazil with a plan to expand to other overseas markets based Since the global financial crisis, Chinese local au- on the test results. Chery aims to localize its prod- tomakers have seen their sales decline. During ucts by building a plant and R&D center in Brazil the crisis, auto sales soared due to the Chinese with a goal of selling 100,000 cars locally per year government’s support for car purchases. Howev- by 2015. Great Wall Motor is currently selling its er, local car companies have lost their position cars in 76 countries and regions. Though it has not since the government’s policy ended and custom- yet entered the U.S. and Canadian markets, Great ers began to demand higher standards. Local car- Wall is preparing to advance into those countries makers have been threatened even more as an by analyzing customer needs and conducting a increasing number of customers have purchased study on how to establish a network. Geely is also foreign vehicles instead of local brands, and Chi- expanding its entry into to the Middle East, South na has widened restrictions on vehicle purchases. America, and Russia, and plans to enter advanced Against this backdrop, local Chinese companies markets, including the U.S., with the aid of Volvo, have made every effort to improve product quali- which it has recently acquired, using China as a ty and brand image through technology develop- manufacturing base. Beijing Auto is also sched- ment. uled to build a production base in Yunnan, south- Last year, local carmakers showed signs of re- ern China, with a view to using it to venture into French automaker Citroën’s Chinese joint venture in Wuhan, China covery. Even though Chery Automobile’s sales de- the Southeast Asian market. creased nine percent from the previous year, sell- China is becoming not only the world’s largest ing 500,000 vehicles at home and abroad, Great auto market but also the focus of global strategies production bases, the introduction of new models, Chinese market will be more intense and the dy- Wall and BYD achieved double-digit growth, sell- for global car companies. Global carmakers’ per- and R&D activities. China, which had been put on namics of the global auto industry will continue to ing 750,000 and 510,000 cars, respectively. Geely formance in the Chinese market not only has a di- the back burner when companies worked out change. How companies respond to changes in also saw its sales increase to 550,000 vehicles, far rect impact on their global status, but also has a their strategies, is now being viewed as a critical the Chinese market will determine their survival short of its original target but up 14% from the pre- growing importance on the operation of global market. What this means is that competition in the and growth.

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Key Strategies of Carmakers U.S. and European Companies Operating in China for 2014 Category GM Volkswagen Ford

Shanghai General Motors Companies Shanghai Volkswagen FAW-Volkswagen Changan Ford (SGM)

Sales Target 166 170 169 79 (10,000 units)

Production Capacity 160 (Four plants) 185 (Seven plants) 172 (Four plants) 80( Three plants ) (10,000 units per year)

Its fourth plant will begin Its seventh plant will begin Its third plant in Chengdu Its third plant will begin operating in Wuhan with an operating in Ningbo with an will increase output with an operating with an annual New Plants annual production capacity annual production capacity annual production capacity production capacity of of 300,000 units of 300,000 units of 600,000 units 350,000 units

BYD’s on display in New York Launch the new “A-Plus” Introduce the locally Produce the 2014 Ford New Models Introduce updated vehicles sedan and Skoda Rapid produced Audi A3 in Fiesta SUV locally in October 2014 January 2014

Source : Hyundai Motor Research Institute for the China Management

Japanese Companies

Category Toyota Honda Nissan Chinese Local Companies Companies FAW Toyota GAC Toyota GAC Honda Companies Great Wall BYD Geely Chery Sales Target Sales Target 64 34 38 48 108

(Passenger cars/ 88 55 58 36 (10,000 units) 10,000 units) Production Capacity 76 (Six plants) 36 (Three plants) 36 (Two plants) 60 (Three plants ) 120 (Five plants) 148 (10,000 units per year) Production Capacity (Six plants, including (10,000 units 150 (Three plants) 65 (Three plants) 91 (Eight plants) a commercial per year) Its fourth plant will Its third plant is under Its second plant will Its new plant will vehicle plant) begin operating in construction begin operating in begin operating in New Plants Tianjin with an annual (completion: 2015, Zengcheng with an Dalian with an annual Expand its third plant in Tianjin with Build a new plant in A new plant in Qinzhou, Its third plant will production capacity annual production annual production production capacity an annual production capacity of Tianjin Guangxi Zhuang Autonomous begin operating of 200,000 units capacity: 200,000 units) capacity of 120,000 units of 150,000 units New Plants 300,000 units Aim to produce Region, will begin operating in with an annual Increase annual production capacity 10,000 new-energy 2015 with an annual production production capacity Introduce the new Launch the new to 1.8 million units by 2015 vehicles per year capacity of 100,000 units of 350,000 units Spirior vehicles Introduce the New Introduce the new Fit, Nissan Qashqai, designed for the New Models Corolla, Corolla HB, Launch C2 models the new City, and an the X-Trail, the new Introduce the BYD S7 Launch new Dihao models Chinese market (C2) Expand SUV line-up, Launch the Introduce the Chery and the new Prado SUV (C1) Murano, and the New Models SUV and the Tang (EV8 MPV and EX8 SUV) in and the Honda series (H8 and H2) in 2014 A2 (C1) in 2014 QX50L hybrid SUV in 2014 2014 Insight HEV

Source : Hyundai Motor Research Institute for the China Management Source : Hyundai Motor Research Institute for the China Management

27 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 28 Cover Story | Southeast Asian Auto Industry Research Institute Southeast Asia Emerges as Cho Chul _ Director, Korea Institute for Industrial Economics and Trade a Post-BRICs Auto Market [email protected]

Over the past few years, emerging economies have driven the growth of the global automobile market. In particular, the BRICs—Brazil, Russia, In- dia, and China— have played a major role in that growth. Recently, however, ASEAN has emerged as a new auto market. From 2006 to 2012, auto sales in major ASEAN countries, including Thai- land, Indonesia, Malaysia, the Philippines, Viet- nam, Singapore, and Brunei increased an annual average of 13.1%. In that time, Thailand and Indo- nesia saw their auto sales grow a substantial 17.9% and 20.8%, respectively, leading the expansion of the ASEAN auto market. In 2012, the two countries sold more than one million vehicles each with Thailand selling 1.44 million cars and Indonesia 1.12 million cars. On the other hand, auto sales in Malaysia increased only slightly to 630,000 vehi- cles. The combined auto sales of major ASEAN countries in 2012 amounted to 3.51 million units, accounting for 4.5% of global auto sales, which is comparable to sales figures for India, the world’s fifth-largest car market. However, the growth of the ASEAN market has slowed since 2013 when auto sales in the region’s largest car market Thailand began to decrease due to political instability. According to some estimates, auto sales rose a mere 2.6% to 3.61 million units in major ASEAN countries in 2013. What is worth not- ing, however, is that sales continued to grow by 10% in Indonesia even as sales fell 6% in Thailand. The ASEAN auto market is expected to be led by Indonesia. Car ownership rates in Thailand and

Workers at a Mitsubishi plant in Thailand (JoongAng Photo)

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1 2 3

1. Robot arms weld vehicles at a Proton assembly plant in Shah Alam, Malaysia 2. PT Honda Prospect Motor plant in Indonesia 3. A Jaguar car on display in Manila, the Philippines (JoongAng Photo)

Malaysia have already reached a certain level of the number of cars sold in the country. Thailand maturity and are unlikely to rise significantly con- ASEAN not just an important exported 1.02 million cars, becoming one of the Japan, absolute leader in the sidering the populations of the two countries. On consumer market but a manufacturing world’s top ten automakers. Auto production in ASEAN auto market the contrary, Indonesia has the world’s fourth-larg- base as well the ASEAN region has surpassed that of India, the est population, its car ownership rate is still low, world’s sixth-largest auto producer, comprising Japan is the absolute leader in the ASEAN auto in- and its economy is growing rapidly, indicating that In fact, ASEAN is more important as an auto man- more than 5% of global output. dustry. Japanese carmakers account for more the country still has great growth potential. Accord- ufacturing base than as a consumer market. Auto Auto production among ASEAN countries has than 80% of auto sales in major ASEAN countries, ing to Indonesia’s auto industry development plan, production in major ASEAN countries amounted gone up sharply at an annual average rate of 12.6% including Thailand, Indonesia, Malaysia, the Philip- domestic car sales are projected to increase to 1.22 to 4.24 million units in 2012, much higher than the since 2006. The country that has witnessed the pines, Vietnam, Singapore, and Brunei. In 2012, million units by 2015, 1.97 million units by 2020, number of cars sold in the region, indicating that fastest growth in car production is Indonesia. Japanese brands accounted for a substantial 84.4% and 3.18 million units by 2025. However, as car the region’s auto industry not only met demand Since 2006, Indonesia’s auto output has grown of total auto sales in the region. Meanwhile, Kore- sales in Indonesia are increasing faster than ex- but also exported products. The largest exporter 23.8% per year on average. Even in 2013, when an carmakers lagged far behind, holding the low- pected, they will have reached 1.23 million units al- in ASEAN is Thailand. It produced 2.45 million ve- overall auto production declined in the ASEAN re- est market share of 2-3% in the ASEAN market. ready by 2013. hicles in 2012, about one million units more than gion, Indonesian car output rose 12.7%. And the combined market share of U.S. and Euro-

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Auto Sales in ASEAN (Unit : %) Auto Sales in ASEAN (Unit : Vehicles) Japanese U.S. and European Korean Carmakers Carmakers Carmakers Other 2007 2008 2009 2010 2011 2012 rowth Rates (%) Share (%) 2007 81.2 6.5 2.7 9.7 Thailand 631,251 615,270 548,871 800,354 794,081 1,436,335 17.9 40.9

Indonesia 433,341 603,774 483,548 764,712 894,164 1,116,230 20.8 31.8 2008 82.2 5.3 2.4 10.1 Malaysia 487,176 548,115 536,905 605,156 599,329 627,753 5.2 17.9 2009 79.9 5.8 3.2 11.1 Philippines 117,903 124,449 132,444 170,348 165,056 184,248 9.3 5.2

Vietnam 91,906 143,846 160,814 146,021 138,117 92,584 0.1 2.6 2010 82.1 5.6 3.2 9.2 Singapore 122,254 110,574 79,503 51,891 39,570 37,247 -21.2 1.1 2011 81.2 7.3 3.1 8.5 Brunei 14,220 14,680 12,365 13,589 14,555 18,634 5.6 0.5

2012 84.4 7.8 2.3 5.5 Total 1,898,051 2,160,708 1,954,450 2,552,071 2,644,872 3,513,031 13.1 100.0

Source: The Asia Automotive Intelligence by Fourin, Mar. 2013 Source: The Asia Automotive Intelligence by Fourin, Feb. 2013

pean automakers in the region was only 7.8%, with while Nissan produced 360,000 cars and sold centered on Thailand. For example, Japanese auto- region is expected to increase to 1.7 million units GM and Ford comprising 2.7% and 2.5% of total 230,000 cars, and Honda produced 320,000 cars makers operating in Indonesia have imported pas- by 2016. The plans to expand its sales, respectively, and German carmakers selling and sold 290,000 cars. Japanese automakers have senger car parts from Thailand. Indonesia depends production by 310,000 units in Thailand, 140,000 few vehicles. not only met local demand for autos, they have on Japan for 39.6% of its auto parts imports and on units in Indonesia, and 100,000 units in Malaysia. Among Japanese automakers, Toyota and its also exported their products manufactured in the Thailand for 34.2%. Nissan also aims to increase auto production by affiliates such as have secured a domi- region. 150,000 units in Thailand and 150,000 units in Indo- nant position. The Toyota Group comprises 44.2% In addition, Japanese car companies have devel- nesia. of total auto sales in the ASEAN region with Toyo- oped vehicles designed for local markets. They have Green car policy and automakers’ Aside from Japanese car companies, GM and ta and accounting for 32.3%, Daihatsu (in- produced family in Indonesia, and pickup expansion strategy Volkswagen are both poised to enter the ASEAN cluding , Daihatsu’s joint venture with trucks in Thailand. Japanese automakers have also market, with each building a new plant in Indone- Malaysian companies) 10.2%, and Hino 1.7%. The successfully established a local auto parts sourcing The ASEAN region has been at the center of atten- sia with an annual capacity of 40,000 units and second-largest carmaker in the region is Honda, system based on their abundant experience in over- tion for global carmakers because of its impor- 50,000 units, respectively. Chinese automakers holding a market share of 8.4% as of 2012. Japa- seas markets. As a result, they have achieved a local tance as an auto production base, not just as a car have expressed interest in the ASEAN market as nese automakers have been able to maintain their procurement rate of 70-80% in Indonesia, where the market. According to Global Automakers’ Invest- well. Chery plans to build plants with an annual dominance thanks to the strong local production auto parts industry is weak, as well as in Thailand, ment Plans for Asia published last September in capacity of 10,000 units and 12,000 units in Malay- system they have established. In 2012, the Toyota where the car parts industry is well developed. Japa- The Asia Automotive Intelligence by Fourin (Japa- sia and the Philippines, respectively, while Geely Group manufactured 1.88 million vehicles and nese carmakers have also successfully formed a co- nese research firm specializing in the world auto- aims to build a plant with an annual capacity of sold 1.54 million vehicles in ASEAN countries operative production network in the ASEAN region motive industry), auto output across the ASEAN 30,000 units in Indonesia. In addition, both Shang-

33 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 34 Cover Story | Southeast Asian Auto Industry Research Institute

Localization Rates of Major Car Models hai Automotive Industry Corporation (SAIC Mo- ASEAN is more important as an auto manufacturing base Produced in Indonesia (Unit: %) tor) and Great Wall Motor Company will build plants with an annual capacity of 50,000 units in than as a consumer market. Models Localization Rates Thailand. BMW 3 Series 21 Companies have concentrated their efforts on Chery Sedan 10 expanding production capacity especially in Thai- 74 land and Indonesia. The reason may be related to To take advantage of this program, Japanese car- donesia finalize the CEPA, Korean automakers Daihatsu Xenia 77 auto policies of the two countries. In 2007, Thai- makers plan to increase production capacity in may find it difficult to export their products direct- 80 land initiated the Eco Green Car project, the first Indonesia. If everything goes as planned, their an- ly as Indonesia applies different tax rates to local- 83 stage of which has already been completed. The nual production capacity will increase by 570,000 ly produced vehicles and foreign-made cars. Auto Hino Trucks 65 second stage of the project has been underway units. The Japanese automakers’ target models sales taxes in Thailand are between 30% and 50% Honda Jazz 50 since October 2012. According to Just-Auto, an are likely to be compacts, which may lead to in- while Indonesia imposes 30-75% sales taxes on Hyundai Sedans, MPVs, SUVs 40 online news agency, carmakers including Toyota, creased production and sales of Japanese passen- most vehicles. Korean carmakers cannot even Isuzu Trucks, Buses 80 Mitsubishi, Honda, Nissan, and invested a ger cars in Indonesia as well as family minivans, enjoy the tax benefits that automakers operating Benz Sedans 30 total of USD 900 million in the first stage of the their flagship model. in Indonesia would receive under green car proj- Benz Bus Chassis 40 project, expanding their production capacity sig- ects. Mitsubishi Maven 72 nificantly. The eco-friendly project has contribut- However, Korean automakers should not give Mitsubishi Fuso 29 ed to increasing sales of eco-friendly cars consid- Korean companies’ strategies to enter up on entering ASEAN, which is a great market erably as the project was designed to offer in terms of both size and growth potential. In Mitsubishi Colt Diesel 47 ASEAN auto market incentives for purchases of passenger cars with particular, they must focus on Indonesia. Indo- Mitsubishi L300 57 an engine displacement of less than 1.3 liters. Even though ASEAN is emerging as one of the nesian markets are relatively open to foreign Mitsubishi Colt T120 SS 62 Thailand announced that it would provide more world’s major auto consumer markets and manu- companies and likely to grow further. On the Nissan Livina 33 benefits to companies participating in the second facturing bases, Korean carmakers have not ag- contrary, Thailand, the largest auto market in Nissan X-Trail 22.7 stage of the project with stricter qualifications. Not gressively entered the ASEAN auto market and ASEAN, does not have great potential. In Thai- 26 just Japanese carmakers but SAIC Motor, Volk- are not likely to establish a production network in land, auto production has already surpassed do- Nissan Diesel Trucks 50 swagen and GM have also announced their inten- the region. With Japanese carmakers taking the mestic demand by more than one million units Suzuki APV 75 tions to participate in the second stage of the eco lead in the ASEAN auto market, entry barriers re- and competition among automakers is likely to Suzuki Futura 58 project. The Thai government estimates that the main very high. In addition, Korean companies be more intense as global companies plan to ex- Suzuki SX4 20 country’s eco-friendly car production capacity may find it difficult to export their products to pand their production facilities in Thailand. Com- 20 will increase to 935,000 units by 2017 and 1.2 mil- ASEAN countries because of high tariff and non- panies planning to enter foreign markets must Suzuki Grand Vitara 20 lion units by 2020. tariff barriers. Indonesia imposes tariffs of up to consider whether they would offer favorable 71 Indonesia has also implemented programs to 40% on most imported vehicles except for certain business environments as well as market pros- 32 promote eco-friendly car purchases. As part of items subject to a ten percent tariff. In Thailand, pects. Thailand has a competitive edge in parts 59 this effort, the Indonesian government has im- auto tariffs on imported passenger cars amount to sourcing, but labor costs are cheaper in Vietnam 76 posed 10% lower consumption taxes on vehicles 80% with commercial vehicles 30%. Even though than Thailand or Indonesia. On the other hand, Toyota Rush 73 with a minimum fuel efficiency of 20 km per liter Indonesia’s import duties on Korea-made cars Vietnam and Thailand are most active in attract- Source: Association of Indonesian Automotive Industries under the LCGC (Low Cost Green Car) program. could decrease in the near future if Korea and In- ing foreign investment.

35 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 36