, the automotive industry in Thailand is the largest in Southeast Asia and the 10th largest in the world. The Thai industry has an annual output of more than two million vehicles (passenger cars and pickup trucks), more than countries such as Belgium, Canada, the United Kingdom, Italy, Czech Republic and Turkey.
Most of the vehicles built in Thailand are developed and licensed by foreign producers, mainly Japanese, American and Chinese but with several other brands as well for CKD production, notably BMW and Mercedes. The Thai car industry takes advantage of the ASEAN Free Trade Area (AFTA) to find a market for many of its products. Thailand is one of the world's biggest markets for pickup trucks with over 50 percent market share for one-ton trucks.
History The first car imported to Thailand was brought by the royal family around 1900. Since then, Thailand has proceeded to gradually develop a viable industry. Compared to the import substitution efforts of other Southeast Asian nations, Thailand's government has generally allowed a larger role in guiding development to alliances of manufacturers themselves.
Many other countries have practiced a centralized approach, while some (like the Philippines) resorted to clientelism and favoritism. This is not to say that corruption has been entirely absent, with car manufacturing companies being involved in the Suvarnabhumi scandal, for instance. Several political families are also of prominence in manufacturing, often benefiting from insider knowledge and the occasional political privilege. Thailand also provided efficient governmental incentives and support for the lesser component manufacturers, enabling them to develop on pace with the multinationals.
Early days The history of the Thai automotive industry began in 1960, when the Thai government set up an import substitution policy to boost local industry. In 1961, the first resulting company, the "Anglo-Thai Motor Company" (a joint venture between Ford of Britain and the Thai Motor Industry Co., Ford's existing importer), began local assembly. The market was very small, with only 3,232 passenger cars sold and a mere 525 vehicles (310 cars, 215 trucks) assembled in Thailand in 1961. Nonetheless, new manufacturers quickly appeared, like FSO and Fiat's "Karnasuta General Assembly Co." and a joint venture between Siam Motors and Nissan.
By 1970, local assembly had increased to 10,667. After ten years of these early efforts at building local industry, the share of Thai-assembled cars was still about half of the market in 1971. A policy review in 1969 found that the tax incentives, rather than lowering the trade deficit, had actually served to increase it. An Automobile Development Committee (ADC) was set up together with manufacturers to try to remedy these problems.
Local content promotion Beginning in 1971, the government (along with private organizations representing the automotive industry) began an effort to increase the localization effort as a result of an ever increasing trade deficit. Many new parts manufacturers and assemblers had sprouted, but a proliferation of models and versions hindered economies of scale. As a reaction, the Thai government increased tariffs on completely built-up (CBU) vehicles and began a graduated increase in the local parts content regulations (up to 25 percent in 1975). A moratorium on new assemblers was also implemented, as were limits on the number of models offered. As manufacturers quickly began circumventing the model limits, these rules were abandoned before they could have any real effect.!
This still wasn't enough for locally assembled cars to compete with imports. The trade deficit in vehicles increased more than sixfold between 1972 and 1977, and plants were running at around a sixth of capacity. After having increased tariffs on CBU cars to 150 percent, imports of CBUs were banned in 1978. Local parts requirements were scheduled to increase to 50 percent by 1983 (although this was kept at 45 percent after pressures from manufacturers and the Japanese Chamber of Commerce).
The local parts requirement did force out several smaller companies such as Dodge, Hillman, Holden, and Simca. Gradually, the manufacture of simple parts such as brakes, radiators, engine parts, glass, and small body parts began to increase meaningfully. After the withdrawal of GM, Ford, and Fiat in the late-1970s, the market also became somewhat more efficient. In 1985, CBU imports with engines over were once again permitted, albeit with a 300 percent import duty.
The 1985 Plaza Accord meant more Japanese direct investment in Thailand, and as the economy began booming the last years of the 1980s saw strong growth. In 1987 a benchmark was reached when Mitsubishi Thailand became the first producer to export Thai-built vehicles, a shipment of 488 passenger cars and 40 buses sent to Canada.
Liberalization and regional integration
In 1991, market restrictions were eased and the market began to grow at a rapid rate due to the resulting lower prices. The ban on imports of cars under 2.3 litres was dropped in 1991, and tariffs were lightened. As a result, a flood of South Korean imports flooded the market. The Japanese manufacturers responded by cutting costs and by introducing market specific, low-priced cars like the Honda City and the Toyota Soluna. In the period from 1992 to 1996, average growth was 12 percent. 1996's results were only exceeded in 2004. This collapsed entirely following the Asian crisis; 1998's sales results (passenger and commercial vehicles) were less than a quarter of what they had been in the record year 1996.
The investment in the pre-crash period led to serious problems of over-capacity which were to last long into the succeeding decade. Capacity was now 1.2 million cars and trucks, in a market which rarely reached 700,000 in sales. The manufacturers responded by increasing export efforts, with 1998 (while a dark year overall) marking the first time that Thailand became a net exporter of cars.
The market had also been helped by the "brand to brand complement" scheme (BBC), instituted in 1992. This allowed component manufacturers in Malaysia and Thailand to freely trade certain parts in order to help them reach economies of scale. The ASEAN Industrial Cooperation Scheme (AICO) helped further the integration of car manufacturers in the region. As a result of the financial crisis, duties on fully built-up vehicles were increased from 42/68.5 percent (with a 2.4-litre threshold for the lower rate) to a flat rate of 80 percent in November 1997. Thai suppliers had also reached a higher level in the nineties, now offering precision injection-molded pieces and with an eye to producing ever more sophisticated products in the future.
After having come to the aid of local manufacturers after the 1997 crash, the Thai government further stimulated trade and regional cooperation by dropping the local parts requirements on 1 January 2003. Further governmental efforts included bilateral trade agreements in the early-2000s, most notably with Australia, China, and India. The Thai automotive industry also endeavoured to concentrate its growth in certain "cluster" areas, mainly in eastern Bangkok but also in Rayong, Chachoengsao, Chonburi (eastern Thailand), and in the centrally located city of Ayutthaya. Thailand's Board of Industries has often referred to Thailand as the "Detroit of the East", and Thailand is indeed by a large margin the largest vehicle manufacturer in the ASEAN area. Still, the decisions that control most vehicle manufacturing in Thailand are made in Tokyo and Detroit rather than in Thailand, as nearly all production is carried out by subsidiaries of foreign conglomerates.
Thailand has an 80% tariff rate on imports sourced from outside ASEAN.
In the midst of COVID-19 pandemic in 2020, United Nations Industrial Development Organization released a report in June 2020 reported that 90% or more of firms expect revenue loss of more than 50% compared to last year. Automotive sectors had a drop in manufacturing performance index (MPI) in April 2020, about 82% year on year, showing the lowest production since 1987.
Production Car production in Thailand is forecasted to drop 37% to 1.33 million units in 2020, and possibly as much as 50% to one million vehicles if the coronavirus pandemic persists, according to the Federation of Thai Industries (FTI). Of the 1.33 million vehicles projected to be produced in 2020, 665,000 units are for export and 665,000 for the domestic market.
Domestic sales Cheaper and simpler cars are naturally preferred, as is the case for most markets at the same developmental stage as Thailand. Remarkable is the popularity of pickup trucks, holding a share of over half the market. This makes Thailand the world's second biggest market for such vehicles, after the United States. Their popularity has been explained as a result of government tax policies as well as a need for multi-purpose vehicles. A downside is that pickups use diesel fuel, now blamed in part for Bangkok's dangerous levels of air pollution. Thailand produced about 1.98 million vehicles in 2017, with 871,650 sold domestically (up 13 percent year-on-year) and the remainder exported, accounting for about US$28 billion in foreign revenues, or 12 percent of the country's total exports of US$236 billion. One-ton pickup trucks accounted for nearly 50 percent of domestic sales in 2017, and an equal percentage of exports. One result is significant diesel particle pollution.
Many manufacturers (Ford, Isuzu, Mazda, Mitsubishi) have chosen to localize their global bases for pickup manufacturing in Thailand, often exporting to Europe, Japan, and much of the rest of the world. These one-ton trucks are not exported to North America, where larger trucks are preferred and a 25 percent import duty is imposed. In 2005, Thailand surpassed the United States and became the world's largest manufacturer of one-ton pickups, and by 2007 were second in the world (again behind the US) in both production and export of pickup trucks overall.
The Federation of Thai Industries (FTI) forecasts domestic sales of 850,000 vehicles in 2017, up 11 percent over 2016. Thailand introduced tax incentives in 2007 for the local production of eco-cars, small-engine vehicles with low fuel consumption that meet European carbon emissions standards. The program attracted nine multinational auto producers, including leading Japanese producers such as Toyota, Honda, Nissan, Mitsubishi and Suzuki. All were required to produce 100,000 eco-cars each over a five-year time frame to qualify for tax incentives. The program proved successful. A newer tax imposed in 2016 is based on carbon dioxide emissions, E85-gasohol compatibility, and fuel efficiency, rather than engine size. The restructuring encourages production of vehicles compatible with E85 and eco-cars. The new tax regime means passenger cars with CO2 emissions of less than 150 grammes per kilometre are subject to a 30 percent excise tax, those with 150-200g/km draw a 35 percent rate and more than 200g/km is charged 40 percent. Cars with E85-gasohol compatibility are subject to less than a five percent excise tax for each carbon emission level. Eco-cars are required to emit less than 100g/km, lowering their tax rate to 12-14 percent from 17 percent. The segments most affected are large pickups, passenger cars, pickup passenger vehicles (PPVs), and sport utility vehicles (SUVs). In anticipation of the new tax, sales of PPVs rose by 42 percent in 2015 to 69,063 vehicles and SUVs by 37 percent to 56,952.
While many Western brands are present, as well as certain others, Japanese brands have long had a dominant position in Thailand. In 1978 and 1982, for instance, Japanese brands achieved 91 and 90 percent shares. In 2006, they still had an 88.5 percent share, in spite of the late entries of Ford, General Motors, Volkswagen, and BMW.