Vehicle production improves significantly on the back of surging exports.

New vehicle sales in Thailand fell 12.5% year on year (y/y) during July to 60,863 units, according to data released by the Thai Automotive Institute (TAI). Vehicle production during the month stood at 165,698 units, which represented healthy growth of 9.5% y/y, as exports of completely built-up (CBU) units gained 11.5% y/y to 102,359 units. Despite the dramatic y/y fall in July, on a month-on-month (m/m) basis, Thai new vehicle sales were up slightly, by 0.9% from June. The decline in July sales was largely down to deteriorating liquidity and consumer purchasing power. For the year to date (YTD), total domestic sales are down 15.8% y/y at 429,972 units, although production has fared better, down by just 0.2% y/y at 1,101,114 units. Meanwhile, exports remain upbeat for Thai original equipment manufacturers (OEMs), standing at 678,432 units for the YTD, up 4.1% y/y.

By brand, the market leader and official compiler of automotive data in the country, Toyota, suffered a 10.3% y/y fall in its sales to 22,433 units during July, giving it a market share of 36.7%. Isuzu came second with 10,999 units (down 12.2% y/y), followed by Honda with 8,533 (down 0.1% y/y), Mitsubishi with 3,851 (down 30.1% y/y), Nissan with 3,246 (down 21.4% y/y), Mazda with 2,922 (down 7% y/y), Ford with 2,663 (down 12.6% y/y), Suzuki with 1,660 (down 3.9% y/y), Chevrolet with 1,011 (down 50.2% y/y), Hino with 702 (down 21% y/y), and Mercedes-Benz with 684 (down 15.5% y/y).

For the YTD, Toyota has sold 145,237 units, representing a decline of 23.1% y/y. Sales at Isuzu total 80,280 units (down 16.1% y/y), followed by Honda with 63,326 units (up 13.4% y/y), Nissan with 29,080 (down 16.4% y/y), Mitsubishi with 27,570 (down 26.1% y/y), Mazda with 19,759 (down 2.6% y/y), Ford with 16,994 (down 26.7% y/y), Suzuki with 12,224 (down 5.6% y/y), Chevrolet with 8,956 (down 45.6% y/y), Mercedes-Benz with 6,044 (up 12.2% y/y), and Hino with 5,435 (down 8.3% y/y).

Outlook and implications

Domestic vehicle demand in Thailand has been weak for the past several months, largely reflecting the state of the economy. July's sluggish vehicle sales performance was largely due to persistently high household debt, as well as financial institutions' stringent lending criteria, which have crippled liquidity and consumers' purchasing power. IHS Automotive forecasts total industry sales to fall for the third consecutive year in 2015 to around 803,181 units, representing a decline of 7% y/y from 863,215 units in 2014; this forecast is lower than the local association's own prediction. Despite the sales slump in the YTD, demand is forecast to revive slightly in the second half of 2015 owing to a low base of comparison, the pull-forward effect of upcoming tax changes, and several new model launches such as the Toyota Hilux Revo/Fortuner, Mitsubishi Pajero Sport, Mazda2, and Suzuki Ciaz. The introduction of a "green" tax in January 2016 is likely to push up car prices, and the country's new vehicle market is likely to benefit from a pull-forward effect by the end of this year. Furthermore, the Bank of Thailand cut interest rates to 1.5% in April and these have been left unchanged, which is expected to stimulate growth for trading sectors. The Thai economy expanded by just 0.7% in 2014 as political unrest disrupted economic activity in the first half of the year, culminating in a military takeover of government in May 2014. However, IHS expects GDP growth of 2.6% in 2015. The country's new vehicle market is expected to post steady gains starting from next year thanks to relatively stable political conditions, which should in turn improve business and consumer confidence levels.

On the production front, total vehicle output is forecast to post a modest 3.1% y/y gain in 2015 to 1,935,912 units, according to IHS Automotive data. Although vehicle production has remained under pressure during most of 2015, output of A- and B-segment models is expected to continue growing during the second half of this year, driven by the new model launches under the second phase of the Thai government's eco-car project, such as the Mazda2, Suzuki Ciaz, and MG 3, among others. Furthermore, production of pick-up trucks is also forecast to grow, helped by models such as the Nissan Navara and Mitsubishi Triton, exports of which began earlier this year.

Strong export volumes will support vehicle production in Thailand during 2015. The country is an established global vehicle manufacturing centre and a key location in the Association of Southeast Asian Nations (ASEAN) region. It has become an important production base for many global automakers, such as Ford, Mazda, Nissan, Mitsubishi, Honda and Toyota, as they can gain easier access to sourcing and supply from the ASEAN region and reduce export logistical costs since Thailand has free-trade agreements (FTAs) with several nations. The industry is helped by the fact that most of the world's leading automakers have already set up production bases in the country, mainly to cater to export markets. Toyota and Suzuki recently began exports of their popular models from their Thai plants.