Analysis: Thai Auto Sector Struggles with Declining Orders and Rising Household Debt – Reuters

By Chayut Setboonsarng and Thanadech Staporncharnchai

BANGKOK – Thailand’s $53 billion automobile industry is confronting a challenging future as heavily indebted domestic consumers find it increasingly difficult to finance vehicle purchases, while international buyers of conventional cars are turning to electric alternatives.

This predicament in Southeast Asia’s largest automotive manufacturing center has led to reductions in production and workforce, prompting the government to implement measures aimed at revitalizing the sector.

The effects are already being felt by companies like Techno-Metal, which has been producing cast iron undercarriage components for Japanese car manufacturers for over 30 years. Currently, production at the company’s two facilities in Chon Buri province has dropped to just 40% of their peak capacity, with the workforce declining from 1,200 employees at the end of last year to 900 now. Deputy General Manager Nattaporn Chewapornpimon noted, "We’ve also cut working hours to 75% and reduced overtime."

Over the past year, automobile production in Thailand has been declining, with a 20.6% drop in August compared to the same month last year. Domestic sales reached their lowest level in 14 years, as reported by industry data.

The automotive sector anticipates producing 1.7 million vehicles this year, down from 1.9 million in 2023. Of these, 550,000 vehicles are projected for domestic sales while 1.15 million will be exported.

"It’s a crisis, quite a serious one, with no easy way out," stated Hajime Yamamoto from Nomura Research Institute, highlighting that a stagnant home market and increasing export competition are putting pressure on the automotive industry.

Moreover, the rapidly growing electric vehicle (EV) sector, which has attracted over $1.44 billion in investments from Chinese manufacturers, is not sufficiently compensating for the declining outputs of the local auto parts industry, which comprises around 2,000 companies employing about 700,000 individuals. Sompol Tanadumrongsak, President of the Thai Auto-Parts Manufacturers Association, pointed out that the cost structure in Thailand is 30% higher than in China, saying, "Thai businesses can’t really do it."

Challenges for Pick-Up Trucks

The troubles besieging the Thai automotive industry center primarily on the pick-up truck segment, which accounted for nearly half of all vehicle sales last year and is ubiquitous across the country. In 2023, the export of over 820,000 pick-up trucks constituted 67% of total production.

However, exports of pick-up trucks have declined by 8.76% this year, and production has also decreased by 20.51%, totaling 616,549 units. This situation heavily impacts Thai companies since over 90% of pick-up truck parts are produced locally, with this segment alone representing 70% of the domestic auto parts market, according to the auto parts association.

Auto parts sales are expected to drop nearly 12% this year, totaling approximately 519 billion baht ($15.68 billion), as indicated in a September report by the research unit of Kasikornbank. Sompol noted, "If auto parts SMEs close today, they are not coming back," adding that conditions are worse than during the Asian financial crisis in the late 1990s and the pandemic. "If left as is, we’ll all perish."

One major contributor to this downturn is Thailand’s household debt, which stands at $484 billion—90.8% of the country’s GDP—as of March 2024. This represents one of the highest debt ratios in Asia, significantly constraining car sales. In the first half of 2024, only 203,000 pick-up loans were approved by financial institutions, compared to 722,000 across the entire year of 2019.

The credit environment is so tight that the country’s leading EV manufacturers’ association has halved its sales forecast for 2024. Existing car owners are also facing difficulties managing their loan repayments. Surapol Opastien, head of the National Credit Bureau, remarked, "Pickup truck non-performing loans began appearing in the first quarter of 2022," with defaults surging by 40% year-on-year to 148 billion baht ($4.46 billion).

Seeking Incentives and Support

In response to these challenges, industry groups are striving to find solutions. The auto parts sector is advocating for greater incentives for foreign manufacturers of traditional internal combustion engine (ICE) and hybrid vehicles. Sompol emphasized, "We want to be the last man standing in ICE, especially for pick-up trucks, and hybrid production … to attract automakers to relocate that production here."

The government is planning to introduce investment incentives and subsidies specifically for hybrid manufacturing. Surapong Paisitpattanapong from the Federation of Thai Industry’s automotive division noted that Japanese manufacturers have also adapted to hybrid technology and still require parts.

Furthermore, Thailand’s Board of Investment is working to attract foreign investors to establish joint ventures with local auto parts companies. Suroj Sangsnit, head of the EV association, stated, "This will convert Chinese EVs into Thai EVs, which can then be exported," referring to the tariffs imposed on Chinese-made vehicles from regions such as the United States, EU, and India.

However, Thai companies face challenges collaborating with Chinese EV manufacturers due to price disparities. As Nattaporn from Techno-Metal explained, "Even if we can supply to Chinese EVs, the profits are minimal." She emphasized the need to continue focusing on original equipment manufacturing for Japanese brands, adding, "If they have EV plans, that would be a blessing for us."