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Automakers Set Their Eyes on Growing Southeast Asian Markets

April 4, 2014

Japanese automakers like Toyota and Nissan have dominated Southeast Asia for decades, and now it seems U.S. and European rivals are about to challenge their reign in the region. Western carmakers are now setting their eyes on Southeast Asia, where car markets are expected to grow.

Volkswagen is the latest automaker to expand operations in Southeast Asia, whose growth potential makes it attractive for all carmakers. The region, which includes Indonesia, Thailand, Malaysia and the Philippines, is foreseen to account for a significant percentage of global auto sales in the near future.

According to IHS Automotive, deliveries in the region could increase 30 percent to 4.4 million vehicles by 2020 from 3.4 million in 2013. This volume is higher compared to the 2.95 million vehicles sold last year in Germany, which is the largest car market in Europe.

IHS predicts that market growth in Indonesia will surpass China in the next five years. Indonesia is expected to post new car sales growth of 48 percent, higher than China’s 41 percent. PRC is currently the number one auto market in the world.

Reuters reported that Volkswagen AG is planning to set up operations in the Association of Southeast Asian Nations (ASEAN) countries. The German company seeks to start building plants in the region to fill the remaining gaps in its global factory network. Volkswagen currently has over 100 facilities across the globe.

Last Tuesday, Bloomberg reported that Volkswagen applied to set up its first production facility in Thailand to benefit from the tax breaks that have enticed other automakers such as Ford and General Motors to invest in the country.

The Wolfsburg, Germany-based auto giant aims to participate in the Thai government program which offers tax exemptions to auto manufacturers that will invest at least 6.5 billion baht ($200 million) in the local manufacturing of fuel-efficient rides. To take advantage of the tax incentives, the annual production must total 100,000 cars four years after operations have started. Manufacturing must also start by 2019.

The Thai Industry Ministry’s program constitutes vehicle assembly, components and engine production.

Volkswagen declined to comment on its plans for Thailand. Sources say that the company has yet to make a final decision on the matter. However, Chief Financial Officer Hans Dieter Poetsch did say that the company sees a “strong market opportunity” in the region.

The Thailand facility is not Volkswagen’s first in Southeast Asia. The automaker began assembling Passat sedans in Malaysia with local partner DRB-Hicom in 2012. At present, the German group assembles three models in the Malaysian factory.

Volkswagen’s latest move is deemed an attempt of the German company to challenge the dominance of Japanese automakers in the region. Japanese rivals have invested in Thailand for many years and now consider the country as a major export hub. Japanese automakers have an 80 percent car market share in Thailand, the biggest in the region.

The German auto giant has its eyes on Toyota Motor Corp. in particular, as it seeks to dethrone the Japanese automaker as the world’s car sales leader by 2018. Toyota dominated the Thai market in 2013, accounting for 30 percent of the 725,135 vehicles sold in the country.

Volkswagen follows other automakers which are tapping the Southeast Asian markets. Ford has started production of the latest EcoSport compact SUV at its Rayong, Thailand assembly plant in January. Peugeot Citroen aims to export its Chinese joint venture partner Dongfeng Motor Group’s Fengshen brand in the region. Meanwhile, Renault is reported to announce a new facility in Southeast Asia sometime this year.

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