Thailand soaks in realities of eco-car programme

The participants in Thailand’s eco-car programme and the Government are slowly realising that hitting the stipulated production targets within the given timeframe is not going to be easily achievable as previously expected.

The good news is that the Government is willing to consider each OEM’s position so long as the company broadly meets its intentions. Naturally, the most important aim of the government was to attract new investments into the country. And if an OEM has already poured in substantial amounts of money, it is only fair that a helping hand be offered if certain conditions such as hitting a production target are not fully met.

After all, demand for a particular model or programme is dependent on so many variables beyond the management of an automaker. These include uncontrollable factors such as the global economy, government policies, regulation in export markets, competitive pressures and shifting consumer trends.

What’s more, Thailand’s neighbours have also come out with similar incentive programmes to attract new investments be it Indonesia’s low-cost green car programme or The Philippines’ Comprehensive Automotive Resurgence Strategy programme.

Working together

While these policies have not attracted as much investment as the eco-car programmes, they have nevertheless partly forced the hand of Thailand’s Board of Investment to be more accommodating.

This type of flexible approach, which should not be construed to be as ‘unstable government policy’, gives confidence to OEMs that their investments are safeguarded and should give back returns. It also leads to a strong working relation between the two main stakeholders: the industry and government.

Looking at the production volume of the early participants in the eco-car I programme, Mitsubishi easily achieved the 100,000-unit output target in the first year of the production start of its Mirage and Attrage eco cars.

Nissan achieved it within two years through the March and Almera while Honda is struggling to meet the criteria with the Brio and Brio Amaze. Suzuki will have to hit the target this year while the newest entrant Toyota still has time to achieve its objective.

Meanwhile, Mazda has started the eco-car II programme with the Mazda2 model. Other automakers who have submitted their applications to participate in the programme are Ford, Honda, Mitsubishi, Nissan, SAIC-MG, Suzuki, Toyota and Volkswagen.

Support system

One clear trend is that exports play a major role in supporting eco-car production. Nissan and Mazda, for example, shifted the build of their eco-cars from Japan to Thailand and are now shipping these vehicles back to their home market.

Mitsubishi too has a solid scalable export programme, sending the Mirage and Attrage to North America. And this is where Honda has had a tough time: without a major export market, domestic demand alone has not been enough to sustain its eco-car output. Meeting the criteria of hitting 100,000 units annual output in the fourth year of production is one part of the story. OEMs taking part in the second phase are also likely to be concerned about the requirement to locally produce four of the five key engine parts (cylinder head, cylinder block, crankshaft, camshaft and connecting roads) and including the manufacturing process of machining cylinder head, cylinder block and crankshaft. This entails setting up an engine manufacturing unit.

We believe that setting up an engine making plant for eco-car II could be a worrying factor for Ford and Suzuki which both have large engine making plants in other parts of the world. Again, exports will play a critical role. Therefore, both OEMs would have to find new markets for powertrains to ensure the profitability of their engine-making ventures in Thailand. This may not be an easy task.

Given these challenges and to allay some of the participants’ concerns, it is thus becoming increasingly possible that the government at the very least may extend the timeframe for OEMs to achieve the annual output of 100,000 units. Another solution may be to consider an automaker’s cumulative production of 100,000 units since the start of its eco-car production. It is also possible that production in both phases may be counted as one, which would give relief to struggling OEMs.

The government could negotiate a revised agreement to safeguard committed investments rather than impose penalties for not meeting an annual production of 100,000 units in the fourth/fifth year.

The writers are Managers, LMC Automotive

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