Automotive: Thailand, the Major Manufacturing Hub of Southeast Asia

In a state-of-the-art factory in Thailand—a country where automotive production is seeing the fastest growth in the world—robots and technicians in pristine hazmat suits perform the final adjustments on the hundreds of vehicles rolling off these production lines every day.

One might imagine themselves in a Ford plant in Detroit or in the company town of Toyota City in Japan. Yet, this Honda factory is located in Thailand, a country whose name typically evokes paradisiacal beaches and spicy cuisine.

As major automakers face a global crisis, Thailand has emerged as a rare exception in recent years, establishing itself as the leading automotive assembly hub in all of Southeast Asia.

Its automotive sector is one of the ten largest in the world, surpassing France. According to the Paris-based International Automobile Manufacturers Association, automotive production surged by 70% in 2012 compared to the previous year, reaching 2.48 million vehicles produced.

By comparison, China and India experienced only single-digit growth over the same period.

And despite the crisis, Thailand has just recorded its highest sales during the first six months of this year.

Thailand, the manufacturing hub for Japanese automakers

Japanese manufacturers, who have relocated part of their production here, as well as the American giant Ford, are major contributors to this growth.

The domestic market plays a significant role in this growth, driven by the government providing a subsidy to every household for the purchase of their first car.

And hundreds of millions of dollars have been invested by Thailand in new factories to support a sector that is currently avoiding the signs of slowdown seen in other branches of the economy.

“Clouds and challenges may emerge, but overall, the automotive industry is being driven by consumers. Consumers who already use two-wheelers want cars, and I do not believe this demand will fade,” analyzes Uli Kaiser of the Automotive Focus group.

As the battle for market share intensifies, major automakers, particularly Japanese manufacturers, are also investing in new plants, targeting both the Thai domestic market and Southeast Asia.

Japanese automaker Honda aims to produce approximately 420,000 vehicles per year in Thailand by 2015, following the opening of a new plant on the outskirts of Bangkok, representing a $644 million investment.

The current euphoria serves as a rebound from the dark year of 2011, when severe flooding in Thailand forced many companies, including Honda, to temporarily suspend operations.

“During the floods, we had to shut down the factory for six months and postpone all of our projects,” recalls Pitak Pruittisarikorn, Vice President of Honda-Thailand.

But ‘Thailand is currently Honda’s largest production base in the region,’ he insists.

Last month, its rival Toyota began production at its brand-new $340 million assembly plant. This marks the manufacturer’s fifth factory in Thailand, where it sold over 500,000 vehicles last year. Toyota is even targeting an annual production capacity of 770,000 vehicles in Thailand, ranging from cars to minibuses.

The group, whose pickups are a ubiquitous sight on Thai roads, has no intention of relinquishing its top position.

“We are fully confident in our ability to grow our industry here in Thailand, alongside many clients. We can maintain a 35% to 40% market share here in Thailand,” explains Kyoichi Tanada, President of Toyota Thailand.

Thailand may, however, have seen its “golden year” in 2012, as sales began to decline following a very strong first half of 2013.

However, analysts still predict a bright future for the Thai automotive industry, forecasting an annual growth of 10% over the coming years.

To the great delight of automakers, and the despair of Bangkok’s pedestrians, whose streets grow increasingly congested each day by the influx of new car owners.