Thai auto industry may benefit from failing strength of US "Big Three"

The socalled "Big Three" this week sought a US$25billion (Bt881billion) bailout package from the US Congress, which however was reluctant to give out such huge sums at this stage. Citing the fallout of the global financial and credit crises, the auto giants said they needed the massive loan to make it to 2009.

Earlier, they had hoped that part of the $700billion rescue package the Congress had approved for the financial sector would be diverted to bail out the auto sector.

Unless the government comes to their rescue, there would be considerable costs for the US economy as the auto industry accounts for 4 per cent of its GDP.

In addition, the public would have to shoulder more than $100 billion in unfunded pension obligations in the auto industry, while three million jobs are expected to be lost in the first year of corporate failures.

According to a major US bank, failure of the three giants means that unemployment will rise by 2 per cent, while related industries such as auto dealers, advertisers, steel and metal suppliers, plastic and rubber companies, healthcare providers, trucking/freight operators and banks will also be hit.

Failures in the US auto sector will also lead to significant losses in the industrial base because domestic automakers account for 20 to 30 per cent of the demand for steel, for instance.

The US auto industry also accounts for more than 12 per cent of advertising spending in the US, making it the second largest spender on ads.

While the outlook of the American auto industry appears to be negative in both short and longterm, the serious problems facing GM, Ford and Chrysler should be positive for Thai autoparts makers, according to Kim Eng Securities.

This is largely due to the fact that most autoparts companies in Thailand mostly supply to Japanese auto giants such as Toyota, Honda, Nissan, Isuzu and Mitsubishi.

As a consequence of the increased weaknesses in the US auto industry, Japanese brands should benefit from higher shares in American and other major export markets.

According to the Automotive Industry Club of Federation of Thai Industries, Thailand's auto production increased by just 5.7 per cent to a total of 124,656 units by October this year.

The output includes production for domestic sales of 53,971 units, down 2.8 per cent, and production for export markets of 70,685 units, up 3.46 per cent.

In the export markets, shipments rose by 15.49 per cent to 67,549 units. For the first 10 months, production was 1,193,386 units, up 12.88 per cent.

Obviously, the "Big Three" are not in the same situation as Thai autoparts makers, which work for Japanese brands that have a greater comparative advantage over their American competitors.

Currently, Thailand is one of the world's largest production bases for onetonne pickup trucks and passenger cars, with an annual output of 1.8 million units.

In the wake of the financial crisis, auto demands in major markets has been hit hard. In the first ten months of this year, exports accounted for 56 per cent of the country's total car production, while domestic demand was still contracting from domestic unfavourable events.