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Southeast Asia slump sets off alarm bells at Japan's automakers

Toyota, Honda and Nissan brace for first regional decline in four years

A Mitsubishi Motors plant in Thailand: The surging baht is creating headwinds for an economy dependent on exports. (Photo by Rei Nakafuji)

BANGKOK/JAKARTA -- Southeast Asia's automobile market is headed toward shrinking for the first time in four years due to a markedly strong Thai baht and a slowing global economy that has strained corporate and consumer confidence.

A market contraction will deal a blow to Japanese automakers, which enjoy outsized shares in the region's production and sales. Despite the downturn, rivals from South Korea and China are plotting to capture market share by rolling out electric vehicles.

A major theme at the Thailand International Motor Expo, which opened Friday in Bangkok, was vehicles that can save owners money at the pump. Toyota Motor previewed its new Yaris subcompact, equipped with an engine that improves fuel efficiency by roughly 15%. Prices start at 539,000 baht ($17,806), which is comparable with the previous model.

Honda Motor is also debuting a City sedan that is both fuel efficient and affordable. Nissan Motor's all-new Almera shares the same attributes. Both companies aim to prop up sales in Thailand, one of Southeast Asia's largest markets that is 90% controlled by Japanese players.

Unit sales in Thailand, however, have undershot year-earlier numbers by 10% in September and October. With sales inching up only 1% during the first 10 months of the year, full year sales could potentially shrink for the first time in three years.

Mazda Motor has already downgraded its Thailand sales goal for this year to 65,000 units from 75,000 vehicles.

"We've only sold two vehicles in November," said a sales representative for a Japanese automaker at a Bangkok dealership. "We've eliminated down payments and offered discounts, but they are not selling."

A main reason behind Thailand's stalled market is the surging baht, which has touched six-year highs against the U.S. dollar. Since the start of the year, the Thai currency has gained approximately 7% in value, and is now approaching 30 baht per greenback, creating headwinds for an economy dependent on exports.

The Thailand International Motor Expo in Bangkok featured a lineup of fuel-efficient vehicles. (Photo by Rie Ishii)

Furthermore, China is suffering from an economic slowdown triggered by the U.S. trade war. Thai exports there fell 6% on the year by value between January and October.

As a result, Thailand's economic growth slowed to 2.4% during the third quarter, a level not seen since 2014, the year of the military coup. Poor earnings at corporations have affected consumer spending.

"Things will be tough until the middle of 2020," said Michinobu Sugata, president of Toyota Motor Thailand.

For Indonesia, whose auto market is on par with Thailand, new vehicle sales dropped 12% from a year earlier during the January-October period. The global economic slowdown dragged down prices for coal and palm oil, Indonesia's chief exports.

Exports have shrunk by 10% to 20% during the first 10 months of the year. Purchasing power has suffered for corporations and consumers alike.

Japanese automakers likewise control over 90% of Indonesia's auto market. But Nissan will suspend vehicle assembly in Indonesia starting next year. Production will focus on manufacturing engines for alliance partner Mitsubishi Motors.

Nissan relaunched the Datsun brand under then-chairman Carlos Ghosn as a strategic label for emerging markets, but the lineup only captured a 2% share in Indonesia. Datsun faces stiff competition from Toyota and its Osaka-based subsidiary, Daihatsu.

In Malaysia and the Philippines, new auto sales have remained flat for the January-October period. Among the six major Southeast Asian countries, including Vietnam and Singapore, auto sales have shrunk 3% during the same span, putting the region on track to post its first decline in sales in four years.

Nevertheless, Hyundai Motor said Tuesday it will establish its first plant in Indonesia, with plans to invest about $1.55 billion through 2030. Production will start in the latter half of 2021 at an annual capacity of 150,000 vehicles. The output will later grow to 250,000.

Hyundai is looking at manufacturing electric vehicles at its Indonesian plant, which hits on a vehicle segment that Japanese automakers have largely ignored in Southeast Asia. Meanwhile, China's SAIC Motor is going all in on electrics in Thailand.

SAIC's joint venture with Thai conglomerate Charoen Pokphand Group launched a Chinese-made electric vehicle in June under the British brand MG. Prices start at 1.19 million baht, which is about 40% cheaper than the Nissan Leaf.

MG holds a 2.5% share in Thailand for sales between January and October, enough to put it in eighth place above Suzuki Motor.

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