In July 2024, at a corner of the parking lot on the north side of the Laem Chabang Port, the picture shows only about a quarter of the new cars in stock on the north side. The Thai car market has entered a channel where both volume and price are falling. At the same time, Japanese car companies are preparing to counterattack, and Chinese car companies need to be ready for hard times after a taste of success. Thailand is the world's ninth-largest car market with annual sales of one million vehicles and annual production of two million vehicles. It is the most active car market in Southeast Asia and a market that neither Chinese nor Japanese car companies can afford to lose. This is the stronghold of Japanese car companies in Southeast Asia and also the outpost for Chinese car companies going abroad. In 2023, Chinese and Japanese car companies formed a rare one-on-one situation in Thailand. The market share of Chinese cars soared from about 5% to about 11%, while Japanese cars dropped from about 90% to 78%. In July 2024, researchers from "Finance and Economics" went to Thailand again to investigate the car market. Half a year later, the market situation here has changed a lot. Driving 110 kilometers south from Bangkok, close to the Pattaya beach resort area, you can see a large number of containers on the side of the road, and you can also see the distant gantry cranes. This is the Laem Chabang Port, the largest seaport in Thailand, known as the "Detroit of the East," and the largest car import and export base in Thailand. After getting off the highway, passing through the narrow paths beside the beach, and passing by the low houses and roadside stalls, you will arrive at the high wall on the north side of the Laem Chabang Port area. The wall is more than 3 meters high and stretches for several kilometers, enclosing all the gaps in the port area. Climbing on the roadside trucks or other high points, the scene behind the high wall can be gradually revealed: countless new cars in stock are neatly arranged, until the end of the line of sight. According to the electronic map measurement, the parking area on the north side of the Laem Chabang Port is about 2 kilometers long and 1 kilometer wide; according to on-site estimation and rough inventory, there are about 8,000 to 10,000 cars in stock. Most of the cars parked here are Mitsubishi brand, and there are also Ford and Isuzu brands. Under the scorching sun of Thailand in July, they endure silently. Mitsubishi has suffered a global collapse in recent years, and it is even worse in Thailand. From the fiscal year 2021 to 2023 (the Japanese fiscal year is from April of the previous year to March of that year), Mitsubishi's global sales volume has decreased by about 13%. Its inventory suddenly doubled in 2022, reaching about 200,000 vehicles. The inventory in the fiscal year 2023 is also 200,000 vehicles, accounting for about 20% of its total output. However, a healthy car company usually has a production and sales balance (inventory is the total output of the fiscal year minus the total sales volume). Mitsubishi's annual sales volume in Thailand has decreased from 80,000 vehicles in the fiscal year 2019 to 30,000 vehicles in the fiscal year 2023. However, the three complete vehicle factories and engine factories of Mitsubishi near Laem Chabang Port in Thailand produced about 275,000 vehicles in the fiscal year 2023. The Thai market cannot digest it, and it can only rely on other markets. However, other places cannot digest it either. The Mitsubishi dealerships in neighboring Indonesia are already full of inventory cars, and finally, they can only be piled up at Laem Chabang Port. The inventory of Mitsubishi cars on the north side of the Laem Chabang Port area is just the tip of the iceberg of the Thai car market. In other areas of the port area, you can also see many parking lots surrounded by high walls, where other brands of inventory cars are parked. Chinese brands have also accumulated a considerable amount of inventory. Some Chinese car companies have accumulated thousands of cars in the port, putting tremendous sales pressure on Thai dealers; some Chinese car companies have stored thousands of cars in the factories in Rayong Province; some Chinese car companies have accumulated part of the inventory at Thai dealers, and the rest is piled up at the port. Generally speaking, if the inventory exceeds three times the monthly sales volume, it is a dangerous situation. Most Chinese car companies have an average monthly sales volume of about 1,000 vehicles in Thailand, and many Chinese car companies have long exceeded three times the average monthly sales volume in inventory. Inventory is just one of the problems. In Thailand, where Chinese and Japanese car companies collide head-on, whether Chinese, Japanese, or Thai people are facing a complex and severe test.
The Thai market is highly dependent on car loans. Bo Qiu, who is in his 30s and has a slim figure, can only say "Sawadee Ka" shyly and softly, and he has to rely on Google Translate for other conversations. Five years ago, he bought a Toyota Fortuner four-wheel drive off-road vehicle, which is mainly used to pick up high-end customers for long-distance travel. Bo Qiu bought the car on loan, and the Toyota dealer helped him get a loan from Toyota Financial Services. The car price of 370,000 yuan was only about 20,000 yuan for the down payment, and the monthly repayment is about 6,000 yuan, with a repayment period of six years, and his monthly income is about 10,000 yuan. Bo Qiu is a typical Thai car owner. They buy cars on loan, and the monthly repayment pressure is not small. According to estimates by middle and senior management personnel of various car companies in Thailand, 90% of new car sales in the Thai car market, regardless of price and model, depend on car loans. Thai people's income is not high, but cars are quite expensive. The average monthly salary in Thailand is about 3,100 yuan, and the per capita GDP in 2023 is higher than that of Indonesia, Vietnam, and India, but lower than that of Brazil and China. However, in terms of car prices, the Toyota Camry, which has been reduced to about 130,000 yuan in China, is priced at about 300,000 yuan in Thailand. Car companies have also used financial tools to the extreme. For example, Toyota has its own financial institution in Thailand and can handle car loans for some car buyers who cannot get loans from regular banks; Isuzu and Mazda offer 0% interest loans, some models can be loaned for seven years, and Honda has introduced a zero down payment policy. Car loans are a double-edged sword. By using financial tools, it can tap into demand and even overdraw demand, but on the other hand, it is more susceptible to the impact of changes in the macro economy and financial policies. Unfortunately, since 2020, Thailand's macro economy and financial policies have undergone significant fluctuations.
"The loan review has become particularly strict this year," said Laris (pseudonym), who works in a bank in Bangkok. In order to review the credit of the loan applicant, she now needs to go to the applicant's home and workplace for inspection. "At present, the non-performing loan ratio of Thai banks has increased, and many people have become unemployed and bankrupt, and can only default on their loans, whether it is car loans or mortgages," Laris said. She has been working for more than ten years and has never seen this situation before. The Thai economy suffered a heavy blow during the epidemic, and its average annual GDP growth rate from 2010 to 2019 was 3.6%, but it dropped to -6.1% in 2020. In response to the epidemic, the Bank of Thailand introduced a series of measures, including allowing debtors to postpone repayment and interest payment. Since then, the Thai economy has slowly recovered, and the GDP growth rate in 2021, 2022, and 2023 has returned to 1.5%, 2.6%, and 1.9%, respectively. On the other hand, the Federal Reserve began to raise interest rates in March 2022, and the Thai baht exchange rate came under pressure. Considering various factors, the Bank of Thailand raised the benchmark interest rate in August 2022 and has raised it several times in a row. By September 2023, the benchmark interest rate was raised from 0.5% to 2.5% over a period of one year. The Thai government has also gradually terminated various stimulus policies during the epidemic. The termination of stimulus policies has objectively increased the debt burden on Thai society. People have not been able to repay their original debts, and at the same time, they have increased new debts. The policy of postponing repayment has also stopped, and they have to concentrate on repaying debts, and the pressure has suddenly increased. Thailand's debt problem has become more prominent. In early October 2023, the Economic and Commercial Office of the Chinese Ministry of Commerce in the Thai Embassy reprinted Thai media reports, pointing out that 57% of people in Thailand have debts exceeding 20,000 yuan, 14% of people have debts exceeding 200,000 yuan, and more than 32% of people face four or more debts at the same time. The proportion of household debt to GDP in Thailand is higher than that in India, Indonesia, and Malaysia. On October 30, 2023, a person from the Financial Institution Stability Department of the Bank of Thailand pointed out that the proportion of household debt to GDP in Thailand has reached 90.7%, while the target set by the Bank of Thailand is below 80%. In order to control debt risk and control the non-performing loan ratio of banks, the Bank of Thailand introduced a "responsible lending" policy in October 2023, emphasizing that financial institutions must lend responsibly. The policy took effect on January 1, 2024. One of the effects of the "responsible lending" policy is that car loans in Thailand suddenly tightened in 2024. According to middle and senior management personnel of car companies in Thailand, since January 2024, the approval rate for car loans in Thailand has suddenly dropped to about 50%, while it was previously 80%-90%. This means that most of the car sales contracts of dealers before could form real sales volume, but after 2024, it is difficult to develop customers, and car loans have tightened. Nearly half of the orders cannot be implemented.Chinese Car Manufacturers Cut Prices
"Can't sell them," said Sun Wei (a pseudonym), a mid-level employee at a Chinese car company in Bangkok, to Caijing in July 2024, referring to the previous monthly sales of nearly a thousand vehicles which now struggle to reach a few hundred, as if the market was frozen. Around 2003, Chery attempted to export its QQ model to Thailand. Around 2014, SAIC Motor partnered with Thailand's Charoen Pokphand Group to build a factory in Thailand with an annual capacity of 100,000 vehicles, selling cars under the MG brand with an annual sales volume of about 20,000 units, resulting in a relatively low capacity utilization rate. Around 2020, Great Wall Motors was optimistic about the Indian market and planned to acquire a General Motors plant in India, but the Indian government suddenly introduced restrictive policies, hindering Chinese investments in India. Consequently, Great Wall Motors turned to acquire General Motors' plant in Thailand, thereby entering the Thai market and currently selling its Haval, Tank, and Ora brand models. In the second half of 2022, BYD and Nio entered Thailand, followed by GAC Aion and Changan Automobile, which established companies in Thailand in the second half of 2023 and started sales. The influx of Chinese car manufacturers has changed the landscape of the Thai automotive market. The electric vehicle penetration rate in Thailand's automotive market exceeded 10% in 2023, with the market share of Japanese brands, which had dominated the Thai car market for decades, dropping from 90% to below 80%. BYD suddenly rose to the sixth position in annual sales, almost catching up with Mitsubishi. However, the Thai car market suddenly took a nosedive. Entering 2024, Thai car sales have seen a significant decline every month, with a 16.4% drop in January, 26.1% in February, 29.8% in March, and 21.5% in April, resulting in a 23.8% year-on-year decrease from January to May 2024. A general decline of over 20% in any global car market is catastrophic. During the pandemic in 2020, the Thai car market fell by 21%, but the decline in the first five months of 2024 was even greater.
Chinese car manufacturers have no way out and cannot afford to slow down. Much of the pressure comes from Thailand's electric vehicle policies. According to Thailand's electric vehicle incentives between 2022 and 2023, Chinese car manufacturers exporting to Thailand during this period could enjoy duty-free status, a reduction in consumption tax from 8% to 1%, and were eligible for government subsidies. However, the precondition was that Chinese car manufacturers must establish factories in Thailand and produce the same number of electric vehicles in 2024. If the production and sales targets are not met and are postponed to 2025, they would need to produce 1.5 times the number of electric vehicles between 2024 and 2025. This means that if a Chinese car manufacturer sold 30,000 electric vehicles in Thailand in 2023, they would have to produce 30,000 units domestically in 2024, and if postponed to 2025, they would need to produce 45,000 electric vehicles in total between 2024 and 2025. However, the Thai car market continues to deteriorate month by month. Electric vehicles shipped from China, Chinese electric vehicles and fuel vehicles produced locally in Thailand, are accumulating at Thai ports, factories, and dealerships, creating a massive inventory. Chinese car manufacturers can only initiate round after round of price cuts. Some Chinese brand electric vehicles have seen price reductions of 10% to 20%, while some more aggressive manufacturers have made four consecutive major price cuts, reducing the price of some models from about 220,000 yuan to about 160,000 yuan. In July 2024, SAIC General Motors released its Wuling Binyue model in Thailand, with a starting price equivalent to about 84,000 yuan, setting a new record for the lowest price of electric vehicles in the Thai market. In response, Thai consumers and media have given a unanimous negative feedback, describing it as an unprecedented "car-selling model" in Thai history, and have turned to "distrust" of the relevant brands, believing that the reason for the price reduction by Chinese car manufacturers is that they can no longer hold on and will exit Thailand in the future. BYD's price reduction even led to complaints from car owners to the Thai Consumer Protection Board. On July 9, the Thai Trade Competition Commission stated that the price reduction by BYD dealers did not constitute unfair price competition, and the situation has not further deteriorated for the time being. The market is declining, and Chinese car manufacturers are reducing prices to maintain volume, but this has instead intensified the decline. "Now it's even harder to sell, consumers believe that there will definitely be further price reductions, and everyone is waiting and seeing," Sun Wei told Caijing.
The Foundation of Japanese Car Manufacturers
"It's probably difficult to persist this time," said Matsui Ichiro (a pseudonym), a Japanese expert at a Thai automotive consulting company, frowning upon seeing the inventory of Mitsubishi vehicles at the Laem Chabang Port. Japanese car manufacturers began large-scale car exports around the 1970s, with export volumes once reaching 6.73 million units in 1985, and currently around 4 million units per year. Japanese car manufacturers have hidden wealth overseas, with domestic car production of about 8 million units per year, and overseas base production once reaching 20 million units in 2018, while China's total production that year was about 27.81 million units. Thailand is one of the most important overseas bases for Japanese car manufacturers. For decades, due to little external competition, Japanese car manufacturers in Thailand have never reduced prices, but have continuously raised prices through updates and upgrades.At the same time, Japanese car manufacturers have established a solid second-hand car pricing system, making consumers believe that buying a new car will not be a loss, and they can still cash out stably when selling their second-hand car after a few years. The preservation of car value, low cost of repairs, and ubiquitous service networks are the cornerstones of the success of Japanese car companies in Thailand. Each Japanese car company has tacitly maintained a common system, without arbitrarily fighting for market share. However, since 2024, "maintaining" has become increasingly difficult. The main sales force of Japanese car companies is concentrated on pickup trucks, especially Mitsubishi and Isuzu, which have seen a larger decline in pickup sales in Thailand. In addition, there is the impact of Chinese cars. The cheapest models sold by Japanese car companies in Thailand are around 110,000 yuan, mainly entry-level family sedans, such as Toyota Yaris, Honda Civic, Mazda 2, Mitsubishi Attrage, with the lowest price for pickup models also around 110,000 yuan. The next level of models, such as the Toyota Corolla, is priced at about 170,000 yuan. Since 2023, a large number of Chinese cars have entered the Thai market, and after several rounds of price reductions, the lowest price for Chinese brand electric vehicles has dropped to less than 90,000 yuan. The BYD Dolphin, which is comparable to the 170,000 yuan Toyota Corolla, has also dropped to 110,000 yuan, starting to compete with models at the Yaris level. The pricing system of Japanese car companies has finally been shaken. At the end of 2023, Toyota reduced prices in Thailand for the first time in decades, and at the beginning of 2024, Toyota also introduced a lower-priced pickup model, the Hilux Champ, with a starting price reduced to 92,000 yuan. Honda and Isuzu also launched price reductions in 2024, with the Honda Civic HEV model reduced from 126,000 yuan to 119,800 yuan, and the Isuzu pickup starting price reduced from 130,000 yuan to 118,000 yuan. Although it is one of the most difficult Japanese car companies to operate, Mitsubishi has not carried out official price reductions in Thailand since 2024. However, Japanese car companies that have not reduced prices, including Mitsubishi, have all launched strong hidden promotions, such as including insurance costs, 0% interest on car loans, and including several years of maintenance and repair costs. "This is the consistent approach of Japanese car companies, which can reduce prices in dealerships in a hidden manner, but never reduce official prices, which is also to ensure the price of second-hand cars and maintain the preservation rate," said Matsui Ichiro. Unfortunately, the second-hand car pricing system in Thailand has been more impacted. Union Auction Plc is the largest second-hand car auction company in Thailand, accounting for about 40% of the Thai second-hand car auction market. All second-hand cars come from bank auctions. That is, after the car owner defaults, the car will be recovered by the bank and sent to the second-hand car auction company for sale to recover funds to compensate for the bank's losses. The CEO of Union Auction Plc said in an interview with the Thai "Bangkok Post" in July that the number of recovered vehicles has increased significantly, with an estimated increase of 20% in 2023, and the increase in 2024 was smaller, but the total volume is still very large. With the economic downturn, people who are unemployed, bankrupt, or have reduced income choose to default and give up their vehicles. According to Thai policy, the cost of defaulting is not high, and it will not be like in China where you cannot take high-speed trains or airplanes. The only impact is that you cannot get a loan from the bank again, but people can still seek private lending. In this situation, the supply of second-hand cars has exceeded demand, and prices have plummeted. At an Auction auction point on the outskirts of Bangkok, the auction starts at 7:30 in the morning. In the parking lot with a length and width of 500 meters, every gap is filled with second-hand cars. Under the shed at the entrance of the parking lot, the auctioneer stands behind a high platform and quickly announces the performance and price of each car with a loudspeaker, and rings a copper bell as soon as a deal is made. At the Auction auction point, motorcycles start at 100 yuan, and four-wheeled cars start at 700 yuan. The additional condition is that if the car battery is old and cannot start, the buyer needs to replace the battery and move the car away as soon as possible. In the face of such a severe situation, it is evident that in the future, the possibility of expanding the cake and coexisting and winning together between Chinese and Japanese car companies in Thailand has been lost, and their own safety can only be achieved at the expense of their opponents' exit. On the one hand, Japanese car companies are adjusting their global layout and transferring to regions with more favorable geopolitical conditions. On the other hand, Japanese car companies have also begun to organize a counterattack in Thailand. First, in terms of financial insurance. The Thai Insurance Commission (OIC) issued a new insurance policy for electric vehicles at the end of 2023, reducing the compensation ratio for electric vehicle batteries, which will be implemented from January 1, 2024, and requires all insurance companies to adjust their policies before May 31, 2024. In the past, when buying electric vehicle insurance in Thailand, if the battery was damaged, you could get 100% compensation, but from January 1, 2024, the first year of electric vehicle insurance can get 100% compensation, but the second year is only 90%, the third year is 80%, the fourth year is 70%, the fifth year is 60%, and more than five years is 50%. This is not conducive to the sale of Chinese electric vehicles. The Thai Insurance Commission is a semi-official organization, representing several major insurance companies, and they formulate insurance policies to regulate the Thai insurance industry. "Some of the large insurance companies in Thailand are Japanese, and even if they are not Japanese, they have a close relationship with Japanese capital," said a Chinese businessman in Thailand. In an even more extreme case, the leading insurance company in Thailand, the Japanese company Tokio Marine Insurance Public Company Limited, stopped accepting insurance for all brands of electric vehicles from July 1, 2024. Second, in terms of automotive policy. The Thai Investment Commission (BOI) announced on July 26, 2024, that it will provide incentive policies for non-chargeable hybrid electric vehicles (HEV), and from 2028 to 2032, it will reduce consumption tax for eligible models. This is a policy that Japanese car companies have been looking forward to for a long time. At present, the Thai and Indonesian governments only provide support policies for pure electric vehicles (EV), deliberately excluding HEV, because HEV is essentially still a fuel vehicle, and its effect on promoting the new energy vehicle industry chain is not obvious. However, Japanese car companies are good at HEV and regard HEV as a sharp weapon to compete with Chinese electric vehicles. The four major Japanese car companies once promised the Thai Prime Minister, who visited Japan at the end of 2023, to invest about 30 billion yuan in Thailand over the next five years, but so far they have not taken action. On the contrary, Suzuki, Subaru, and Honda have successively announced the closure of their Thai factories. "Japanese car companies need HEV incentive policies, but the Thai government has not taken action, and Japanese car companies have not taken action," said Matsui, but now the Thai government is finally willing to support HEV. In this situation, Chinese car companies urgently need to change. First, stop the disorderly price war and establish a coordination mechanism, either reduce the price to the target position in one step, or adopt the method of unchanged official prices and hidden price reductions by dealers to avoid continuous price reductions causing Thai consumers to wait and see. Second, improve communication with the Thai people and the media. In other regions, price reductions will usually have a variety of comments, after all, a decrease in car prices is actually beneficial to consumers, but in this Thai price reduction storm, the Thai media and people unanimously criticized Chinese brands. On the road to going global, Chinese car companies should learn from the narrative ability and event interpretation ability of Japanese car companies, and only by mastering this ability can they win the hearts of consumers. Third, Chinese car companies should be alert to macro risks and control the rhythm of production and sales. The production capacity of Japanese car companies in Thailand can be absorbed in different regional markets in a timely manner through the global production and sales system to ensure the utilization rate of production capacity. However, the current overseas production capacity of Chinese car companies has a low utilization rate, facing the problem of production capacity absorption. Fourth, Chinese car companies need to enhance their financial strength in Thailand. For Thai consumers who have formed the habit of buying cars on loan, Chinese car brands lacking financial support are difficult to establish a long-term stable market expectation. No matter how many difficulties there are, the friendly geopolitical environment in Thailand and the basic situation of high electric vehicle penetration rate have not changed, and it is still one of the best destinations for Chinese car companies to go global at present.
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