Incentives from the Thai government to encourage automakers to produce fuel-efficient “eco-cars” have yielded a raft of major investments and started to change how Thais drive, experts say.
Tax breaks for automakers and car buyers were unveiled last year, as the government worried that Thailand's position as the world's biggest maker of light pickups might not be enough to guarantee the future of its auto industry.
The kingdom churns out 900,000 one-tonne trucks every year — about three-fourths of global output.
But amid soaring oil prices and concerns about greenhouse gas emissions, the government expressed concern that the global market for gas-guzzling trucks could weaken as consumers turn to more fuel-efficient cars.
So last year Thailand announced incentives to encourage automakers to set up local production bases for “eco-cars” that meet the most stringent European emission standards and run on fuel with a 20 percent ethanol component.
Sales taxes on smaller cars were also slashed from January 1, which sent sales booming in the first two months of the year.
“First-time car owners, and especially motorcyclists who want to become car owners, are cost-conscious consumers,” said Surapong Paisitpatnapong, spokesman for the Federation of Thai Industries' automotive club.
“Investments in eco-car production will help grow this new segment of the country's domestic auto market while increasing exports,” he said.
Seven automakers — including Toyota, Volkswagon, and India's Tata — have proposed eco-car projects to Thailand's Board of Investment. Four have already been approved, according to Surapong.
Among the deals, Honda plans to invest 6.7 billion baht (213 million dollars) to assemble eco-cars while manufacturing engines and parts here.
The new plant will produce 120,000 units a year, with about half destined for other Asian and European markets.
Suzuki says it will spend 9.5 billion baht to build a new factory in central Thailand that will employ 1,200 people and produce 138,000 units a year. About 80 percent of the output will be for export.
Nissan has announced a 5.55 billion baht investment to produce 120,000 units a year, also mainly for export.
Under the scheme, the companies will not have to pay corporate income taxes on their investments for eight years, and duties on imported machinery will be waived.
Most of the proposals are designed to produce cars for export, and shipments of passenger cars from Thailand already jumped more than 43 percent in the first two months compared to the same period last year.
But the government is also boosting domestic demand for fuel-efficient vehicles by slashing excise taxes to 17 percent, compared to the previous rates of 30 to 50 percent.
That has already sent sales of small cars soaring in a country that has long favoured roomier trucks and SUVs.
Passenger car sales jumped nearly 33 percent in January and 45 percent in February, against the same months last year, according to Toyota Motor Thailand, the industry's statistics compiler.
“Eco-cars are going to be hot in Thailand's auto market. The lower prices for these minicars, along with high oil prices, will drive up the demand,” said Nongnapat Wilepana, a Nissan dealer in Bangkok.
Analysts say the new investments by automakers will also give the broader economy a boost by creating new jobs.
“There will be more jobs for local people not only at auto assembly plants for eco-cars but also at auto part plants” supplying the new factories, said Pichai Lertsupongkit, senior vice president at Thanachart Securities.
Thailand's main worry is that its auto industry depends entirely on foreign companies, since the kingdom has no national automaker, Surapong said.
That means the country will have to keep wooing automakers with attractive offers in the future to deter them from looking for better deals for their factories in other countries, he warned.
