Asian Auto Parts Makers Ready To Grow

BANGKOK, May 30 Reuters is reporteing that Asia's army of vehicle parts suppliers are revving up for growth as Japan's big automakers boost investment to tap into growing demand from the region's rebounding economies.

Hit hard by the 1997 economic crisis, when vehicle sales nosedived, Asian auto parts suppliers are now reporting impressive profits as carmakers relocate from Japan, where the domestic market is saturated and production costs are high.

"Sales are not up to pre-crisis levels, but demand for basic vehicles such as pick-up trucks has picked up, and the (Thai) domestic recovery remains intact," said Neil Spencer, deputy general manager at auto parts maker Thai Rung Union Car Plc.

"We've got no reason to think business won't keep on improving."

Japan produced 54 percent of the 17.8 million vehicles made in Asia in 2001, followed by Korea, China, India and Thailand.

But by 2012, Japan's share of production is projected to decline to 37 percent, with China, India and Thailand taking up the slack, according to research from DRI-WEFA, a London-based consultancy.

Isuzu Motors Ltd, 49 percent-owned by General Motors, said this month it is planning to shift its entire truck production base to Thailand by 2004.

DETROIT OF ASIA

Thailand, where the auto industry makes up 16 percent of gross domestic product and employs eight percent of the workforce, is the world's second largest market for pick-up trucks outside the United States.

"They are Japanese in name but the vast majority of parts are made here in Thailand by independent companies, although Japan supplies some components," said Spencer.

Thai Rung Union Car Plc, which produces truck bodies and chassis for Nissan, Isuzu and General Motors among others, posted a 121 percent jump in first quarter net profit this year.

Thai Storage Battery Plc has seen first quarter profit grow year-on-year by 160 percent, while headlight equipment maker Thai Stanley Electric Plc , whose financial year ends in January, saw last year's net profit jump 43 percent year-on year.

Thai brokerages have flagged the three companies as good long-term investments in Thailand, where cheap financing propels car sales.

"If Isuzu sells more trucks, then we sell more parts. It's that simple," said Thai Rung's Spencer.

CHINA THREAT AND OPPORTUNITY

China and India, which operate under a low cost base in a vast market, may pose a major threat to other Asian car parts makers.

"It depends how you look at it. China could be a competitor, but it could also be a potential market," said Thanawat Patchimikul, head of research at Thailand's DBS Vickers Securities.

Following its entry to World Trade Organization late last year, China slashed tariffs on car components to 10 percent from 20 to 30 percent. This opens up more possibilities for local carmakers to source parts globally.

Taiwan's largest car maker, China Motor, which sells under the Mitsubishi Motor brand, began exporting cars parts in 1997, chiefly to southeast Asia and Japan for Mitsubishi-related plants and a local joint-venture in China.

"Our exports and export ratio definitely will keep on rising in the coming years as demand for our car parts, especially from our mainland venture, is increasing significantly," said Yu Shen-hai, deputy spokesman for China Motor.

Currently, car parts exports account for slightly more than 10 percent of the firm's total revenues, Yu said.

Experts say that countries with high labour costs compared to China, such as Thailand and Taiwan, must invest in research and development to maintain their edge as cars become more computerised.

"China is the kind of place you can't afford to ignore," said Ashvin Chotai, DRI-WEFA's director of Asian Automotive Research.