* Auto industry around 11 percent of Thai economy
* Thailand enjoys big advantage in supplier base, skilled
* Thousands of auto workers have been laid off due to
* Big car makers have cut production or slowed expansion
* Japanese manufacturers looking a Indonesia, India in
By Khettiya Jittapong
CHONBURI, Thailand, May 29 Thailand's second
military coup in a decade will not scare off foreign car firms,
who still prize its skilled labour force and network of parts
suppliers, but expansion plans are on hold after months of
unrest as Indonesia lures some investment away.
The auto industry accounts for about 11 percent of Southeast
Asia's second largest economy, and most of the big global
players use the country as a regional hub.
"That will not change," said Takao Katagiri, Nissan Motor Co
Ltd's regional chief. "There is a strong foundation
there including the supplier network. That's not something that
can be changed so easily."
In the short term, the turmoil that prompted the army to
seize power in a bid to end seven months of sometimes violent
street protests has not changed much for the big car makers, who
are likely to export around half the cars they make in Thailand
"What is happening now has not had a direct impact on actual
livelihoods and corporate activities. Manufacturing is operating
smoothly and our sales and business operations are going on as
usual today," Katagiri said.
Smaller players in the supply chain are suffering more, due
to the damage the unrest has inflicted on domestic demand. Auto
parts maker Aapico Hitech Plc said on Thursday its 2014
revenue would fall 10-15 percent, worse than earlier forecast.
At the sprawling Amata Nakorn industrial estate at Chonburi,
60 km east of Bangkok, 30-year-old Rungsan Seagproa said he had
suffered a drop in his 19,000 baht-a-month ($580) salary after
the auto parts supplier he works for cut back on production.
"The factory is running at around 30-40 percent," said the
assembly worker. "I lost about a few thousand baht after the
company cut the overtime shift. Now, I need to be careful about
At least 30,000 subcontracted workers in the auto sector
have been laid off because of the slowdown this year.
"COUP BEATS DYSFUNCTIONAL GOVERNMENT"
Scores of politicians were detained for a while after the
coup and censorship imposed, but some Thais welcomed the
relative calm and the return of functioning government. One
Toyota executive familiar with the country agreed.
"We'll take an orderly coup d'etat any time over a highly
dysfunctional democracy that led to a gap in political
leadership in Thailand over the past six months," he said.
Car industry executives say the mood in Thailand was morose
even before the coup.
Domestic vehicle sales had surged a heady 80 percent in 2012
to 1.44 million vehicles, fuelled by a state subsidy for
first-time car buyers that was part of government efforts to
boost the economy after floods devastated great swathes of
Thailand in 2011, including huge industrial parks in the central
That couldn't last, and sales fell nearly 8 percent to 1.33
million in 2013, according to the Federation of Thai Industries.
Toyota Motor Corp has forecast a further drop of 14
percent this year as political turmoil has pushed consumer
confidence to a 12-year low.
It is not just the auto industry that is suffering because
of the unrest. Figures on Wednesday showed factory output was
lower than a year before for the 13th consecutive month in April
and capacity utilisation in industry stood at just 56.6 percent,
the lowest since the peak of the flooding in December 2011.
Imports were 14.5 percent lower than a year before as the
domestic economy stagnated and exports continued to struggle,
down 0.9 percent compared with April 2013.
Thailand's car sector is suffering from longer-term
problems, too, including a shortage of labour and wages that are
higher than elsewhere in the region.
Japan Automobile Manufacturers Association head Fumihiko
Ike, who is chairman of Honda Motor Co Ltd, said car
makers were starting to look at Indonesia and India, both of
which have vast long-term growth potential.
Indonesia is a second Southeast Asian hub for Toyota Motor,
the world's biggest car maker, but it can't match Thailand as a
manufacturing base, an Indonesian-based Toyota executive said.
"In terms of parts supply infrastructure and human
resources, Indonesia isn't that sophisticated as yet and cannot
compete well with Thailand as a place to operate all aspects of
the business, from product development to manufacturing to sales
and marketing," he said.
Shingo Ikeda, a Singapore-based expert on Southeast Asia's
automotive industry with Roland Berger Strategy Consultants,
said, judged by the number of parts suppliers, Thailand's auto
industry was around three times the size of Indonesia's, which
he reckoned would take around a decade to catch up.
"It's very hard to switch investment from Thailand to
Indonesia," Ikeda said. "As an automotive hub in Southeast Asia
in the shorter term Thailand is very, very strong because of
this huge supplier base."
Thailand's Hemaraj Land Development Pcl has
attracted the likes of Ford Motor Co and General Motors Co
plus many parts firms to its five industrial states.
"Infrastructure like power, communications, ports, other
than road bottlenecks, are very good. There is an excellent
automotive supplier base, labour and production costs are
reasonable, and the ease of business is favourable in Thailand,"
said David Nardone, its managing director.
To be sure, Japanese firms have pulled in their horns in
Thailand, and politics has been a factor.
Honda said on May 22, hours before the coup, that it had cut
output at one plant to 60 percent of capacity. It is delaying
the start-up of a new plant by up to a year from April 2015,
according to company officials in Thailand, but may reconsider
if demand picks up.
Toyota said back in January it could reconsider planned
investment of up to 20 billion baht ($609 million) in Thailand
or even cut production if political unrest dragged on.
But the Japanese car makers have been in Thailand for
decades and have already invested heavily in manufacturing
capacity in the country that cannot be easily shifted.
"We don't have any plans right now to expand capacity over
and above that which is already built. So we don't have any
difficult decisions to make," said Andy Palmer, chief planning
officer at Nissan, which is opening a second Thai plant soon.
"If this was happening two years ago, that might be a
different situation. One might pause and think, but right now we
are already pregnant. The baby is coming whether you like it or
($1 = 32.7100 Thai Baht)
(Additional reporting by Yoko Kubota and Maki Shiraki in Tokyo
and Yokosuka, Japan and Norihiko Shirouzu in Beijing; Writing by
Alan Raybould; Editing by Alex Richardson)