SINGAPORE — Asia's auto suppliers have been hammered by the regional economic crisis that began in July 1997, but most will live to see the better times that at least one industry analyst believes are on the horizon.
Though hard-luck stories abound, Michael J. Dunne, president of Bangkok, Thailand-based Automotive Resources Asia Ltd., said nearly all Asian automotive suppliers survived the crisis, though many had to sell off equity or secure loans from customers.
In the decade before the crisis, the region's vehicle makers increased total production of cars and commercial vehicles by an average of 20 percent per year, peaking in 1996 at 1.51 million units, Dunne said. The crisis crushed local demand. Sales in the Association of Southeast Asian Nations' four main markets of Thailand, Malaysia, the Philippines and Indonesia plummeted 68.6 percent to less than 455,000 units in 1998 from 1.45 million units in 1996.
Dunne said ARA predicts vehicle production among member states in ASEAN — and the above four account for 95 percent of the nine-nation ASEAN alliance's vehicle sales — will begin to rebound again in 1999, and reach 1996 levels by 2004.
Only China bucked the Asia-wide trend, with vehicle sales climbing 6.7 percent from 1.5 million units in 1996 to 1.6 million units in 1998.
In addition to increasing local demand, Dunne said ASEAN plastics suppliers can look forward to greater exports, too.
``Whereas Japanese carmakers already source product from Southeast Asia today, Western companies have not yet seized the opportunity,'' he told delegates March 25 at Modern Plastics International's ASEANplas 99 conference in Singapore. This is because Southeast Asian technology still lags that of the United States and Europe and because Western carmakers are not convinced of Asian suppliers' quality.
Those barriers will fall as European and American carmakers enter Asia, bringing their technology with them, and as Western automakers work with and gain trust in local suppliers.
``The greatest opportunities for export of plastic auto parts from Asia are those which are high-value, labor-intensive, efficiently packable, and robust. The more-commonly shipped items are sun visors, insulation, deadeners, engine mounts and under-hood plastic parts,'' Dunne said.
Materials substitution also will benefit plastics auto suppliers, ARA says. For example, the ratio of steel fuel tanks to plastic ones in Asia will go from 6:1 to 2:1 in five years, and plastic air-intake systems will continue to replace the metal systems favored by Japanese automakers.
The Asian Free Trade Agreement, if implemented as expected, will prompt the fall of protective tariffs by 2003 and alter the regional landscape forever. Import duties on components traded within ASEAN are to fall to between zero and 5 percent by then. Such changes are likely to force local suppliers either to merge with competitors or come up with the resources to serve the entire region.
But, Dunne warned, don't look for Southeast Asia to become a free-trade area overnight. The current concentration of heavy investment by Western automakers in Thailand means that other ASEAN nations, fearing an imbalance, may be reluctant to proceed with trade liberalization.
ARA said several strategic factors are likely to affect the region's auto industry:
In both China and Southeast Asia, global automakers will continue to try to force out smaller, local players without global affiliations — and the same will hold true for the auto suppliers community.
Thailand is ramping up exports because it has the capacity to produce about 1 million vehicles a year and registered sales of less than 145,000 units in 1998. ARA said Mitsubishi, Ford, Honda, Toyota and Isuzu exported about 60,000 cars and trucks from Thailand in 1998, and that number should rise to 130,000 units this year.
Overcapacity has brought pricing pressures, which have eaten away at the profit of automakers and their suppliers.
``Nowhere is the pressure more extreme than in China,'' Dunne said, ``where the price of the market-leading Volkswagen Santana has dropped more than 25 percent in two years.''
He said that thin to nil margins at the original equipment manufacturer level are spurring suppliers to search for other ways to utilize their plants.
Still, recovery is in sight.
``The worst is over and Asia's tiger markets are coming back,'' Dunne said.
``Thailand, thanks to a sharp rise in exports, will lead the recovery of Southeast Asia. On the other hand, politically hobbled Indonesia needs to find stability before real growth can resume.''
Dunne calls the Philippines a potential dark horse in the region, since Japanese automakers now are investing more there than in Malaysia or Indonesia.
China remains the big question mark, according to ARA. Though its vehicle sales rose 3 percent in 1998, the signs point to difficulty ahead, said Dunne.
``Look for China to be flat in 1999, possibly dipping into negative territory.''
However, despite the chilly overall climate, no one is talking about backing out of the region.
Dunne warned that the ``golden years of easy profits are over,'' but he added that ``Thailand, China, the Philippines and even Indonesia offer terrific potential — and recovery will come more quickly than most expect.''
Dunne suggested that automotive plastics suppliers start small in the region and grow slowly.
Dunne insists there is money to be made in Southeast Asia, ``but the spoils will go to those who become or join a global player.''