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Falling Sales Threaten Thailand’s Car Manufacturing Sector

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Family looks at purchasing a Honda in Chiang Rai


BANGKOK – Political uncertainty and Falling car sales in Thailand are raising concerns that Southeast Asia’s leading car-manufacturing nation could lose out to competitors in the region, especially Indonesia.

The Thai government on Tuesday reported a nearly 11% year-to-year drop in domestic car sales for February, marking the 21st consecutive month of decline. The weak numbers come as auto makers roll out a bevy of promotions at this week’s Bangkok auto show, traditionally one of the industry’s busiest sales periods.

Robust domestic demand would be important to Thailand maintaining its crown as the largest auto producer in Southeast Asia, and reaching its goal of producing 3 million cars a year by 2017. Last year, Thailand produced 1.92 million autos, including light, medium and heavy commercial vehicles, according to data firm LMC Automotive.

“If demand doesn’t turn around in the next couple of months, it’s going to be very bad,” said Chukiat Wongtaveerat, an analyst with Ipsos Business Consulting, which lowered its full-year auto sales target on Tuesday. “There’s a lot of uncertainty in Thailand.”

Mr. Chukiat said, however, that rising exports from Thailand could help prop up the country’s car industry even if domestic demand doesn’t recover quickly. Thailand’s auto shipments abroad in February rose more than 11% due to a pickup in the Australian market and European growth in the so-called eco-car segment, according to the Federation of Thai Industries’ Automotive Industry Club.

Thailand’s eco-car program reflects a government initiative for production of lower-emissions vehicles. It is seen as a cornerstone of the country’s efforts to build its auto industry and drive car exports.

Thailand is Southeast Asia’s largest auto manufacturer and has long been attractive for car producers because of a supply chain built over more than 50 years. But lingering political uncertainty in the country, along with steep household debt, which central bank data show stood at 84.7% of gross domestic product at the end of the third quarter of 2014, have weighed on the nation’s auto industry.

Thailand’s army seized control of the country in a coup in May 2014, promising an eventual return to democratic rule. The resulting political uncertainty has weighed on consumer demand.

The danger is that as Thailand’s car industry struggles, auto makers will look elsewhere. “The heightened political uncertainty has dented the confidence of auto makers in making major new investments in expanding Thai production,” said Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight.

By Kathy Chu and Nopparat Chaichalearmmongkol

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