For more than two decades, carmakers from the U.S. and Japan have invested billions in building up capacity in Thailand, once viewed as Asia's most promising developing market for auto manufacturing. The country's vision of becoming the Motown of the Far East hit a speed bump in 1997 when the Asian financial crisis sent auto production into a tailspin. By 2002 output had climbed back to pre-crisis highs of 547,000 vehicles per year. But by then a new challenger had emerged to take top honors as the hottest auto-making hub: China.
While Thailand remains an important regional base, especially for the Japanese, the rise of China as workshop to the world has seriously dented Thailand's dream of becoming a regional rival to Japan and South Korea. DaimlerChrysler (DCX), General Motors (GM), and Honda Motor (HMC), among others, have all set up big carmaking operations in Thailand, but they are now reserving their biggest and most ambitious investments for China, which is expected to pump out some 5.6 million vehicles this year. China's own auto makers are even threatening Thailand's primacy in Southeast Asia by starting to export there. "China can make anything and everything more cheaply than Thailand," says Michael J. Dunne, director of Bangkok consultancy Automotive Resources Asia (ARA) Ltd. "It all comes down to price."
To cope, Thailand is focusing on its strength as a mass producer of sturdy, no-frills diesel pickup trucks for the rutted roads of developing economies. Already the world's second-largest manufacturer of pickups, Thailand makes trucks for Ford (F), GM, Isuzu (ISUZF), Mazda, Mitsubishi Motors, Nissan (NSANY), and Toyota. The quality of most is good enough to export to other markets, including Japan. About one-third of Thailand's total vehicle production of 928,081, which includes 597,914 trucks, was exported last year to destinations ranging from Argentina to South Africa, according to ARA. Toyota Motor Corp. (TM) alone plans to spend $357 million to boost Thai output of its new export-grade Hilux trucks and raise its total annual output in Thailand to 550,000 vehicles by 2007, up from 270,000 last year. Honda has exported a small Thai-made subcompact for sale to Japan's finicky car buyers since 2002.
Yet China is advancing rapidly along its own learning curve. Honda, for example, in June began shipping a similar subcompact from a new plant in Guangzhou to Europe. Some analysts expect Honda to expand China-made exports to other markets, such as Southeast Asia. It wouldn't be the first to do so. Chinese carmakers such as Chery Automobile Co. are also casting an eye to the region. In April, Chery began selling a Chinese-made 1.6-liter engine A160 compact in Malaysia, Southeast Asia's largest sedan market, for under $15,000, less than the locally made 1.6-liter Proton Waja or 1.5-liter Thai-made Honda City.
While it may never reclaim its place as the white-hot center of auto production in Asia, Thailand does have some things going for it. For one, the country serves as a hedge against the big bets being placed on China, and Thailand has nurtured a vast network of auto-parts suppliers. Plus, the Thais allow foreign carmakers to gain 100% control of local operations, unlike China, which usually restricts ownership to 50%. "As long as China [insists on] a domestic partner, it is going to be at a competitive disadvantage in attracting production targeting destinations outside of China," says Chris Richter, a senior analyst at CLSA-Asia Pacific Markets in Tokyo. "China is really about meeting domestic Chinese demand."
With global auto makers in China focused mainly on making passenger cars for the masses, Thailand may be content to serve as the leading pickup production base outside the U.S. "Comparing China and Thailand is like comparing apples and oranges," says Graeme Maxton, Asia analyst at London-based consultancy Autopolis. "One wants to be a global player in passenger cars and the other wants to be a niche player in pickup trucks." Thailand can only hope Chinese consumers don't develop a taste for the Ford Ranger or the Toyota Hilux.
By Chester Dawson in New York and Assif Shameen in Singapore