BMW Thai unit expansion hinges on AFTA plan

BMW Thai unit expansion hinges on AFTA plan

BANGKOK (Dow Jones): The Thai unit of Germany's auto maker Bayerische Motoren Werke AG, believes Thailand has great potential to become its regional hub for production and export but says that expansion depends on the development of free trade in the region.

"Thailand is the only country in Asia where we have invested in a plant. This is a strategic investment for BMW," Karsten Engel, president of Bayerische Motoren Werke (Thailand) Co., told Dow Jones Newswires in an interview.

BMW has invested around US$25 million in the Thai assembly plant which has an annual capacity of 10,000 units but is currently running at only less than a fifth of its capacity, he said.

Engel said any increase in production volume and capacity will depend on the growth rate of domestic sales and on the speed at which the Association of Southeast Asian Nations' Free Trade Area agreement, or AFTA, moves to remove tariff barriers for the automotive industry.

"Our expansion has to be in line with the development of the AFTA agreement. At the moment we have enough capacity to export to all countries in Asia," said Engel.

Earlier this year, AFTA suffered a setback as Malaysia decided unilaterally to delay tariff reductions on cars and parts until 2005, from 2003 as earlier agreed. Although the move has upset Thailand and foreign investors, a meeting last week among AFTA members formalized the delay, allowing Malaysia to compensate its partners for not reducing tariffs on cars.

Malaysia stood firm by its decision, arguing it needs to protect its national car maker Perusahaan Otomobil Nasional Bhd., known as Proton.

The tariff barrier removal will provide a great opportunity for BMW to export from Thailand to the rest of Asia, Engel said.

"From our current investment plan, we can expand our capacity to 30,000 cars per annum, but when we'll do it depends on AFTA," he said.