How Thailand made a mess of small cars

Thailand's intentions to promote a small car policy were honourable but the implementation was a complete nightmare.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 14 Aug 2006 Views icon6228 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
How Thailand made a mess of small cars
For those cynics who think that the Budget’s definition of small cars borders on being unfair, they only need to look at Thailand to understand that India has played its cards a lot better. Indian finance minister, P Chidambaram set tongues wagging with whispers doing the rounds that he was partial to a section of carmakers. The good part, which nobody could even object to, was that customers would now get a good deal.

The Budget clearly stipulated that a small car could not be over four metres long with engine capacities of 1200cc for petrol and 1500cc for diesel. Chidambaram sure let the cat among the pigeons. Thanks to the new definition, a Tata Indica diesel became a small car but its petrol sibling continued to be a large car thanks to its engine capacity! The same applied to Maruti’s Swift whose 1.3 litre petrol version denied it the small car status but this would be made up once its 1.3 diesel version made its debut.

The latest twist in the tale is that some automakers are keen that the definition be made more flexible by increasing the petrol engine quotient to 1500cc too on the lines of diesel. No word has been heard on the subject but it is likely that the government will be quite glad to comply unless it is well and truly worried about revenue considerations.

Moving on with the main theme of this article, there are no two ways about the fact that the finance minister’s intent is clear which is to make India the manufacturing hub for small cars. This product segment still constitutes a lion’s share of sales which has prompted the likes of Toyota, Honda and General Motors to join the small car bandwagon. But Chidambaram’s small car definition and duty reduction isn’t half as bad as the mess Thailand’s industry ministers have created with the country’s small car project.

Thailand aims to produce 1.8 million vehicles by 2010. Sadly though, the Southeast Asian kingdom has put all its eggs in one basket. For decades, a three percent excise on pickups (versus 30 percent for passenger cars) has invariably forced the hand of carmakers to produce pickups in the country. As is well known, a one-tonner is the bread and butter of carmakers there. The favoured duty structure makes pickups cheaper by 200,000 baht (which would be roughly Rs 2.4 lakh). Not so surprisingly, Thailand is the global leader in production of one-tonne pickups and only behind the United States in overall pickup output.

But then, one can only sell so much of a product. Over the last couple of years, the government has been strongly promoting what the local media have dubbed a “second product champion” in the form of a small car. The small car project – alternatively called Best Little Car, Eco Car, Aces Car – has passed through at least four industry ministers. It’s a pity not much action has been seen on the ground. Perhaps, the closest the project came to reality was during the tenure of Industry Minister Watana Muangsook. This was when, like India, Thailand defined a small car.

The minister proposed a small car to be: 3.6 metres long (11 feet) and 1.6 metres wide (4.5 feet), with an engine of sub-1,000cc, capable of driving 100 kilometres on five litres of so-called E20 fuel (20 percent ethanol blend). The price was deemed to be 350,000 baht, or Rs 4.2 lakh, largely helped by just a ten percent excise duty.

Now, as analysts say, that is really defining a small car. Widthwise, it’s a narrow car to sit in. In a typical car, the driver’s seat and gearshift would take about a metre. This is a lot smaller in contrast and could be a tight fit for someone who needs to go on a diet in a tearing hurry. No carmaker is currently selling sub-1,000cc cars in the country, so demand for such a market is virtually unknown. There is no telling how Thailand’s E20 fuel policy would progress (see Autocar Professional June 1, 2006 Issue). And the price tag of 350,000 baht is almost half of the current average car prices of 1.5 litre sedans.

Carmakers like Suzuki and Honda showed keen interest in the project. The latter, in fact, promised to invest 6.6 billion baht (Rs 800 crore) to expand its production line and make a small car positioned below the City/Jazz subcompact. Former vice minister of industry Vachara Panchet, the man in charge of the small car project then, was all too excited. “'Starting with Honda, we expect the first economical car to be rolled out in the next 18 months and it would be followed by other brand owners,” he commented to the local media in July 2004, when discussions were being held with carmakers.


But that wasn’t quite the reaction from Toyota Motor Thailand, the country’s largest automaker. It made it clear that it was not in favour of specific dimensions as well as giving excise sops to the small car saying that this could affect market dynamics. The specific pricing was another sore point. “It’s a fool’s idea to sell a car for 350,000 baht,” exclaimed Ryoichi Sasaki, president of Toyota Motor Thailand, to this correspondent in an earlier interview. “I am surprised how and where this figure came from,” he added.

Another senior Toyota executive explained that limiting engine displacement was not a good idea either, citing the example of Japan’s 660cc cars. “The K-cars are only good for domestic market as no one outside Japan would buy them,” he said. Thailand of course was looking to export its small cars as well.

Muangsook, the industry minister, did not pay much attention – he was ready to present his proposal to the Cabinet. The proposal never reached the Cabinet. He was bumped out in an August 2 Cabinet reshuffle, and in came the powerful Suriya Jungrungreangkit, formerly transport minister overseeing the construction of the Suvarnabhumi Airport, the country’s new international airport.

He immediately hit the headlines. In one of his first public speeches, Jungrungreangkit told the media that he had asked the Thailand Automotive Institute to go back to the drawing table and restudy the Eco Car project. His main concerns, he added, was whether there would be sufficient local demand for the small car plus the impact it would have on Thailand’s policy of saving energy. A new product would entice car-crazy Thais and so more cars on the roads would consume more fuel and thereby increase the country’s oil bill, he rationalised.

But the gossip doing the rounds in the industry was Jungrungreangkit, whose family is a leading automotive supplier to carmakers including Toyota, was helping the Japanese car giant. After all, Toyota was the sole opponent to the small car specifications.

Thanathorn Juangroongruangkit, executive vice president of Thai Summit Group, had told this correspondent that the volume of Toyota business in his company was only 3-4 percent against 20 percent in the case of Mitsubishi and Honda. “I think this is absolute nonsense. As you can see, Toyota is almost non-existent in our business volume,” he had said.

Thai Summit has a plant in Delhi with a second plant being built in Pune. The Thai auto parts supplier wants to increase its volume in Delhi to Rs 70 crore by 2007 and overall revenue of Rs 500 crore from India in the next three years. Its product portfolio consists of sheet metal, interior and exterior parts (instrument panels, bumpers, fenders, etc.), seats, electrical products, aluminum and aluminum products, and tooling. The focus in India is on sheet metal.

Jungrungreangkit’s (the minister) decision virtually buried the country’s small car project. A source in Bangkok told Autocar Professional that none of the carmakers is discussing the small car project at the moment. And judging by the lack of news reports on the issue, the Thai media too may have buried the concept.

The industry and finance ministries along with related agencies have stopped making statements on the importance (or lack of) of the country’s ‘second product champion’. In the end, it’s been all hype. Thailand may do well to learn from India’s small car experience.
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