BANGKOK, Sept.27 (Xinhua) -- Several China-based auto-makers are currently preparing or considering to switch from importing to production in Thailand, a crucial step of localization aiming at shaking off import duties and augmenting ompetitiveness, and also a skillful move to bring themselves closer to the booming southeastern Asian market.
In a tariff-fee zone about 100 kilometers east to the capital city Bangkok, workers are busy with all the metal-fusion and concrete-building, reving up their work under the supervision of Chen Rongyu, chairman of DFM Minitruck Thailand.
Chen told Xinhua that the assembly factory, a joint venture developed by his company and the Chinese parent company Dong Feng Motor, would run into operation next month and reach full capacity in the coming six months.
By then, the production of Dongfeng XiaoKang, now a well-known minitruck model in Thailand, will upgrade from Semi Knock Down ( SKD) to Completely Knock Down (CKD), given at least 40% of its assembling process will be transferred to Thailand.
According to Chen, the DFM minitruck currently sells around 3000 units per year in Thailand, accounting for about half of the country's minitruck market and the number of it 4S dealerships that also provide after-sale services scattering all around the country has reached 39 -- an achievement prompting the company to accelerate the localization of its production.
Under the country's laws, entirely imported trucks are charged 40 percent of tariff and those for passenger cars are even higher. The burden of import duties pushes up the prices of the vehicles and drags down their competitiveness against locally manufactured or assembled units.
Kwanchai Paphatphong, president of Inter-Media Consultant Co. Ltd and organizing chairman of Thailand's annual International Motor Expo, told Xinhua in an interview that the vehicles which had been added a certain percentage of "local contents" through CKD will be exempt from tariffs, "that's the biggest advantage compared with imported cars."
The Dong Feng Motor in China planned to give full support to the expansion of the assembly factory soon after its launch, in order to address the rising local demand for the minitruck, and the sale was expected to double in the coming years, Chen said.
Apart from DFM, Chen noted, other Chinese brands such as First Automotive Works (FAW), Chang'an, Chery, were all interested in localization in Thailand and had been engaged in talks with local distributors during the recent months.
In an email to Xinhua, Kanawan Montagan, managing director of CheryThai, said that CheryThai delivered around 2000 units of four models from China to the local market per year and it had the same agenda with DFM of moving production to Thailand and the project was now under a feasibility study by Chery China.
And there are other benefits a wider market. Asean countries are now striving for a common goal of economic integration under the framework of Asean Economic Community (AEC), which has been inspired by the European Union model and is to be completed by 2015.
"We are now in the first stage of AEC, dubbed the 'Early Harvest', during which Asean countries agree to share with other countries their selected commodities, including Thailand's rice, Laos' hydroelectric power, Malaysia's rubber, and also the automobiles. They can actually go among the Asean member countries without paying any tariff," said Chen.
"That is to say, starting production in Thailand or some other Asean countries will serve as a gateway leading to a huge market covering the whole Southeast Asia region, with a staggering population of nearly 6 billion."
TAP THE RIGHT POTENTIAL
The Chinese cars, spearheaded by DFM, entered the Thai market four to five years ago and their quality was proven to be better than the Thais had expected before, said Kwanchai, the Thais had gradually become familiar with Chinese brands, but there was still a long way to go.
Asked about the place of Chinese cars in the eyes of Thai customers, Kwanchai put them somewhere between Korean cars and Malaysian cars, or a medium-low level. "What the Thai people pay most attention to is the price plus quality. In this sense, the Chinese cars are a little bit under Korean products, better than Malaysians and Indians, but not comparable with Japanese ones."
As to the future development of Chinese cars in Thailand, Kwanchai suggested that they should pay more attention to choosing the right customers to target. "They should find at least one product which is cheap but not too bad in quality in order to approach the grassroots," he said, "The Thai customers are like a pyramid, if you approach the grassroots, you will have a large customer base, but if you approach the middle or upper level, you have to fight with Toyota, Honda, and others, which are already very mature in the Thai market."
He noted that Chery may have some problem in this regard. "Its distributor in Thailand wants to create Chery as a quality car so the price is high, but the quality does not really follow up."
According to the CheryThai website, Chery QQ, a small-sized passenger car, is priced around 400,000 baht, or 13000 USD in the country, almost doubling its price in China.
On a Thailand-based website entitled "QQLoverClub", Chery QQ owners exchange views on their beloved rides. An unnamed clubber told Xinhua that he chose QQ primarily because of its cute and unique appearance. "It is very convenient to drive QQ in a big city and very easy to find a parking space." As to the shortcomings, he replied, "the car doesn't really save the energy" .
And Chen, chairman of DFM Minitruck Thailand, also noted that for China-based autos, localization was not an easy job. They are, generally speaking, disadvantaged in the markets of Southeast Asian countries, facing intense competition from other foreign companies, especially from the Japanese.
"Some competitors want to cut off our supplies completely so they can squeeze the Chinese brands out of the market," said Chen, a veteran automobile dealer who has gone through ups and downs in the business for the past 45 years. "Sometimes we have to literally sneak behind their backs to develop ourselves."
Another obstacle comes from the financial system. According to Chen, Most financial institutions in Thailand refuse to provide loans to support Chinese-car deals, and insurance companies, citing the "vulnerability" of Chinese cars, charge more fees on them, almost 25% higher than that placed on Japanese cars.
By localization, Chinese cars may also dodge another bullet. Chen said that the DFM, under a newly-launched policy, applied to the government for the rebates of the 3% exercise tax, equal to around 7000 baht for its customers, and had already received approval.
Earlier this month, The Thai cabinet gave green light to the tax rebate scheme for first-time car buyers who purchase vehicles between Sept.16, 2011 and Dec 31, 2012. The vehicles must have an engine capacity of not more than 1,500cc or be double-cab pick-up trucks with an unlimited engine capacity but a price not exceeding one million baht per unit, and the refund will be equal to the actual tax charged on each model but not more than 100, 000 baht.
But it takes tolls and draws criticism. An important premise of the policy is that the eligible vehicles must be manufactured or assembled in Thailand. However, imported cars, Malaysia's Proton, South Korea's KIA, and Japan's Suzuki, to name a few, will be excluded from the scheme and thus lose at least part of their competitiveness.In wake of the policy, Tata Motor Thailand lodged a complaint with the Indian ambassador in Bangkok, citing the " discriminatory" nature of the scheme and accusing the Thai government of conducting unfair trade practice against imported vehicles.
However, the policy is still well received by domestic auto- makers and young consumers, the two main beneficiaries. In a report released last week, Kasikorn Research Centre viewed the new policy as a major driving force of the automobile sales in Thailand from 2011 to 2012 and predicted that the policy would boost the domestic sales in 2011 to 900,000 to 940,000 units, a 12% to 17% increase, and sales in 2012 to 98,000 to 103,000, a 7% to 12% increase.
But Kwanchai contended that the scheme would only create fake demand and after the short-lived boom, the market would experience a downturn.
There are other concerns. Hathaiwal Sutharattanachaiporn, researcher with Kasikorn Research Center, told Xinhua that the policy, by targeting low-income earners who would rely on loans to purchase cars but have limited repaying capabilities, would increased risks of default on installments faced by financial institutions which provide auto loans.
Meanwhile, with more cars being encouraged to enter the Thai households, the traffic will deteriorate and more petrol will be consumed. According to Hathaiwal, the Thai government is now working on measures to solve traffic problems and probably will follow Beijing's lead by implement a limitation on tail numbers, so as to curb rush-hour communing.