Shake-out looms as carmakers hunker down in Asian market

Shake-out looms as carmakers hunker down in Asian market

TOKYO (Reuters): Asia's economic crisis has not cooled the enthusiasm of several big Japanese and U.S. carmakers hoping to solidify their positions in the region, but analysts said a prolonged slump could force a shake-out.

Japan's carmakers, who have long dominated Southeast Asian markets and recently completed a fresh round of investments there, have mostly dug in their heels to wait out the crisis.

At the same time, U.S. carmakers, especially Ford Motor Co, are determined to catch up in the region despite the current downturn.

Further complicating the picture is a struggle for survival by South Korean carmakers, whose ambitious plans have been thrown into doubt by that country's debt crisis.

"I don't think all of the companies will be able to hold out," said Ryuichiro Inoue, general manager at Mitsubishi Research Institute's Asian market research department.

"If there's a two-year lapse in the market, it might not be such a grim scenario, but nobody thinks the economies (of the region) are going to rebound in that short a time," he said.

Although Japan's carmakers have slashed output at their Southeast Asian operations in recent months, so far only financially troubled Mitsubishi Motor Corp has said it will shut down facilities in the area, with plans to close one of its two plants in Thailand.

At the same time, Ford Motor Co and its Japanese affiliate, Mazda Motor Corp, are proceeding with a pickup truck plant in Thailand due to be completed by mid-year, while Ford announced on Friday it would spend $100 million on an assembly plant in the Philippines scheduled to open in the fall of 1999.

Ford is also said to be mulling injecting fresh capital into South Korea's debt-ridden Kia Motors, whose creditors filed for court receivership last October. A Kia executive said on Monday he was hoping for a decision in May or June from Ford, which along with Mazda is Kia's chief shareholder with a combined 17 percent stake.

The moves follow Ford's announcement last October that it was investing $1.5 billion in Asia to boost its market share in the region to 10 percent over the next 10 years from about one percent.

"Although people talk a lot about the short-sightedness of business in America, (Ford) is still an example of companies chasing areas which are strategically important to their business," said Peter Boardman, senior analyst at SBC Warburg Ltd Japan.

Nevertheless, he said insufficient efforts were being made to address what he said was massive overcapacity in Asia.

"Overcapacity is what's been hampering the market's recovery. People are just not willing to cut that as quickly as had been hoped," he said. "Overcapacity means that people are just keeping their jobs. There aren't massive layoffs, and that's really what has to be done."

"The Japanese are going through a soul-searching now to try to figure out how to get out of this thing," he added. "I just have a difficult time expecting that they're going to be able to turn this place around as quickly as they hoped."

Mitsubishi Research's Inoue agreed that the recovery in Southeast Asia's car market could be a slow, painful one.

"Even if you take the optimistic view that GDP (gross domestic product) will recover in two or three years, the slump in the car market will probably last longer," he said.

"It will take about twice that long for various conditions (for a car market recovery) to fall into place, such as a boost in purchasing power by the middle class and re-establishing a proper loan system," he said.

Japan's carmakers have hunkered down in the region, temporarily cutting output, providing financial support to local subsidiaries and boosting their exports from the area.

Honda Motor Co managing director Katsuro Suzuki told a news conference on Monday that the company had cut production in Southeast Asia by 75 percent. Honda is using the down time to bring 250 Thai employees to Japan for training.

Toyota Motor Corp , which recently started up new plants in Indonesia and Thailand, has begun exporting Thai engines to Japan and plans to export Thai-made Hilux compact pickup trucks to other markets in the middle of this year.

In the meantime, analysts said they were watching to see how far General Motors Corp would pare down an ambitious plan to invest $750 million in a new plant in Thailand.

GM has said the project will be scaled back and the start-up delayed a few months from the scheduled mid-1999 opening, although Ron Frizzell, president of General Motors Thailand, said late last month that the company's ultimate plans were for annual capacity of 80,000 to 100,000 vehicles.