YANGON -- Myanmar's restrictions on imported vehicles are pressing foreign automakers to switch to local production, adding pressure to a crowded field in Southeast Asia's last promising growth market.
Last week, South Korea's Hyundai Motor marked the opening of a new contract manufacturing facility in Myanmar by launching its first locally made cars. That makes it one of five local producers in an auto market shy of 20,000 sales per year -- about 2% the size of nearby Thailand -- despite a population of over 50 million.
As rapid economic growth raises hopes for a surge in auto buying in the near future, Hyundai and rivals like Japan's Suzuki Motor are set to fight even more fiercely for a slice of the market.
In one illustration of the pressure automakers face from import restrictions, the blue-and-white flags and advertisements marking the kickoff of Hyundai's locally made Accent sedans trumpeted not the vehicles' quality or price, but the fact that the cars would be eligible for Yangon license plates.
The government of Myanmar aims to inject life into its auto industry to prevent a flood of vehicles from Thailand, Southeast Asia's top producer. The goal is to incentivize local production to boost hiring and help companies amass technology. But the Economic Community of the Association of Southeast Asian Nations has done away with tariffs on auto imports within the region, leaving Myanmar to pursue nontariff barriers.
In 2016, Yangon froze issuances of parking space certificates required to obtain a license plate bearing the city's name. As a result, residents seeking to buy imported cars have been forced into workarounds like using the names of people from other regions.
Moreover, Myanmar's Ministry of Commerce has imposed regulations on sales and prices of imported cars. It has also choked off supply by strictly limiting how many cars individual sales agents can import. In addition, imports face a registration fee from which locally made cars are exempt. It ranges from 5% to 120% of the sticker price.
Shwe Daehan Motors, the local company producing vehicles for Hyundai, invested $9.82 million to set up new facilities near Yangon with an annual production capacity of 10,000 units, with plans to churn out 3,000 in its first fiscal year. The goal is to make Hyundai a national leader within five years, said Shwe Daehan executive Kim Sun Bal.
Kia, Nissan and Ford all dove into Myanmar between 2013 and 2018, but they were preceded by early starter Suzuki, which has built an over-50% share of the market since forming a joint venture for local production in 1998. The automaker stopped production for a time, but resumed in 2013 and opened a second factory in 2018. Besides its mainstay Swift subcompact, Suzuki also makes sedans and minivans. It aims to repeat the success it had in India, where the automaker found a niche when the market was still getting off the ground.
This year, Nissan aims to start work at a contract manufacturing plant on the outskirts of Yangon, lifting its production capacity more than 10-fold to over 10,000 units. Kia -- a Hyundai group member -- and Ford Motor also outsource local production. Toyota Motor, which currently relies on imports in Myanmar, says it is "considering a range of options."
Myanmar's 2018 new-car sales totaled 17,519 vehicles, according to a domestic auto industry group. Even factoring in sales for Hyundai and Kia, which were not included in those statistics, the tally falls short of 20,000 -- far smaller than Japan's 5.27 million, for instance -- and the competition is growing fiercer.
The country's economy is growing at around 6% to 7% per year. Automakers are preparing production and sales networks and honing their brand power in anticipation of the market hitting the point where car ownership tends to rise sharply -- that is, when per-capita gross domestic product reaches the $2,000 to $3,000 range. They see cause for optimism especially in Yangon, where per-capita GDP hit $2,200 in 2017.
Out of the six ASEAN members with populations in the tens of millions or greater, Myanmar is the only auto market that has not yet reached a scale of between 300,000 and 1.1 million in unit sales.
In 2018, Southeast Asia's new-car sales hit a record high of roughly 3.5 million. Thailand and Indonesia both exceeded 1 million, with Malaysia the next-biggest market at 600,000. Thailand and Indonesia are also the region's biggest auto producers and have a significant export presence, especially by Japanese automakers.
Auto sales in the Philippines and Vietnam are in the 300,000 to 400,000 range, and have been growing at an average annual clip of 20% over the last half decade. Urged on by government efforts to promote domestic industry, some automakers are expanding production in those markets.