China forces ASEAN's auto industry to modernize
China forces ASEAN's auto industry to modernize
Martin Abbugao, Agence France-Presse, Singapore
Southeast Asia's auto industry is stuck in low gear because of isolation and fragmentation and risks biting the dust as liberalization turns China's vehicle market into a sleek, well- oiled machine, experts say.
Some industry players and analysts say ASEAN should tap the huge potential for inter-regional trade and ride on the opening of the Japanese market as the region cruises the liberalization freeway.
Others however say there is little room for complementarity and that the key to being competitive is forging alliances with bigger players, focusing on products where ASEAN has a comparative advantage and speeding up the region's integration.
A paper presented at a recent meeting of Asia-Pacific transport officials and manufacturers here said liberalization in China is forcing its "fragmented and inefficient" auto industry to restructure "into a more modern and technologically global supplier."
"China is a major market in the region and its adjustments will inevitably affect ASEAN, either in terms of trade between them, or in third country markets," said the paper prepared by a research group of the independent think-tank Pacific Economic Cooperation Council.
The ASEAN Free Trade Area (AFTA) that will bring down tariffs on most goods traded in the region to a maximum 5.0 percent by next year is expected to boost inter-regional trade which is currently at negligible levels, the paper said.
Current tariffs range from 10-40 percent for cars and components in ASEAN's four biggest markets -- Indonesia, Malaysia, the Philippines and Thailand.
In 1999, only 2.19 percent of automobiles made in the region were traded within the Association of Southeast Asian Nations (ASEAN) which also covers Brunei, Cambodia, Laos, Myanmar, Singapore and Vietnam, the paper said.
Europe was the biggest market, accounting for 39.38 percent of ASEAN automobile exports, followed by Australia and New Zealand with 24.72 percent, the Middle East and Africa with 11.32 percent and East Asia with 10.73 percent.
For components, inter-ASEAN trade accounted for 11.26 percent, with the biggest outside markets being North America and Japan at 22.26 and 20.46 percent respectively.
Thailand has focused on manufacturing pickup trucks and Malaysia the mid-sized car Proton. The Indonesian and Philippine markets are dominated by the light commercial vehicle segment.
Specialization is also evident, with Thailand focusing on ignition wiring sets, engines and engine components, and Malaysia on sound systems, oil filters and brake parts, the paper said.
Indonesia specializes in tires, filters and sound systems, while the Philippines has its hands on ignition wiring sets, gear boxes, radios, electronic accumulators and car bodies.
However, Graeme Maxton, Asia-Pacific director for global consulting firm Autopolis, disagreed, saying ASEAN countries were mostly competitors.
"Malaysia makes cars, Thailand pickups and Indonesia majors on the Kijang (a utility vehicle). Now you could say 'that's good, they complement each other so there can be trade,'" Maxton said.
Maxton also said there was little future for inter-regional trade because while governments see the potential, each country wants to be the hub.
The PECC research paper however said that despite Malaysia's decision to delay the opening up of its auto sector to 2005, ASEAN members "are now very close to a major liberalization in inter-regional automobile and component trade".
ASEAN could also take advantage of Japan's new strategy to outsource its needs for auto parts and components, the paper said.
Mitsubishi is aiming to outsource 95 percent of its component production after its partial acquisition by DaimlerChrysler in July 2000, it said.
Suzuki, which currently buys only one percent of parts from overseas, should increase foreign procurements after joining General Motors' worldwide purchasing network, it added.
Manufacturers are pinning their hopes that AFTA can lead to a more integrated ASEAN market.
"The only way it can increase its competitiveness is to increase the (pace of the) liberalization process for AFTA faster than it's doing," said Stephen Collins, president of the Automotive Trade Policy Council, which represents US car manufacturers.
"It's not happening fast enough," he said.