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.