Toyota may rethink Thai investment plans if crisis lingers; Malaysia said it would further open its auto industry to foreign makers of energy-efficient cars to better compete with Thailand for investment

Toyota may rethink Thai investment plans if crisis lingers

5:35am EST

By Manunphattr Dhanananphorn

BANGKOK (Reuters) – Toyota Motor Corp (7203.T: Quote,Profile, Research, Stock Buzz) may reconsider investing up to 20 billion baht ($609 million) in Thailand, and could even cut production, if political unrest drags on, the head of the Japanese automaker’s local unit said on Monday.Toyota is the largest car manufacturer in Thailand, producing 800,000 vehicles a year. Plans to increase its annual capacity by 200,000 vehicles a year over the next three to four years are now uncertain, Kyoichi Tanada, president of Toyota’s Thai unit, told a news conference.

“Our new investment in Thailand may not happen if the current political crisis goes on longer,” Tanada said.

“For new foreign investors, the political situation may force them to look for opportunity elsewhere. For those that have already invested, like Toyota, we will not go away. But whether we will invest (further) or not, we are unsure.”

Thailand is the biggest auto market in Southeast Asia and a regional vehicle production and export base for the world’s top car manufacturers like Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz).

Protesters have been trying for more than two months to bring down Thailand’s government, forcing ministries to close and Prime Minister Yingluck Shinawatra to shift her workplace as part of an attempted “shutdown” of the capital.

If the unrest affects economic growth, Toyota may cut its production in Thailand while it assesses the situation, Tanada said.

“After the shutdown, we have fewer visitors going to our showrooms. We are ready to cut down our car output if we are affected by the political situation,” he added.

Toyota produced around 850,000 cars in Thailand in 2013, selling 445,000 domestically and exporting some 430,000 vehicles. This year, it aims to sell 400,000 cars domestically and export 445,000, Tanada said.

Overall auto industry sales in Thailand are expected to fall 13.6 percent to 1.15 million vehicles in 2014, mainly due to weaker consumption and slow economic growth, data from Toyota’s Thai unit shows.

This will be the second consecutive year of decline after an 80 percent surge in 2012 fuelled by government subsidies for first-time car buyers and pent-up demand after severe flooding in late 2011.

Domestic auto sales fell 7.7 percent to 1.33 million vehicles in 2013, according to the Federation of Thai Industries (FTI).

January 20, 2014, 11:31 a.m. ET

Malaysia Relaxes Rules for Auto Makers — Update

By Shie-Lynn Lim

KUALA LUMPUR–Malaysia said Monday it would further open its auto industry to foreign makers of energy-efficient cars to better compete with Thailand for investment.

The minister of international trade and industry outlined changes to the country’s automotive policy, explaining that Malaysia will make it easier for foreign auto makers to get licenses to produce cars and motorbikes powered by hybrid and electric engines.

Hybrid cars won’t be subject to taxes until December 2015, but Malaysia will keep its excise taxes on imported non-hybrid cars, which can be as high as 105%.

The automotive industry in Malaysia, which includes 11 car makers, employs about 550,000 people. The changes to try to entice more foreign auto makers to build energy efficient cars in Malaysia could turn Malaysia into manufacturing hub for such vehicles, creating 150,000 new jobs, International Trade Minister Mustapa Mohamad said.

The policy also offers financial support in terms of soft loans and grants close to 2.1 billion ringgit ($633 million) for foreign companies that set up plants to produce energy-efficient vehicles, Mr. Mustapa said.

“We want to transform Malaysia’s auto industry and our aim is for Malaysia to be a hub for energy efficient cars in Southeast Asia, ” Mr. Mustapa said.

But “current market players will find the future auto landscape to be one that is highly competitive and challenging,” said Chong Lee Len, senior analyst at Affin Investment Bank, because the domestic car makers at some point will have to compete or fail.

Malaysia, Southeast Asia’s top producer of passenger cars until 2003, now trails Thailand and Indonesia. Analysts blame policies to protect Malaysia’s domestic car companies from foreign competition for stalling growth and reducing investment.

Malaysia introduced a National Automotive Policy in 2006, with the aim of helping the country compete with Thailand.

While regional free-trade agreements have pushed Malaysia to reduce tariffs, foreign auto executives and analysts have long called for the Southeast Asian nation of 28 million people to change its opaque licensing system for auto imports.

Under the system, every car produced and assembled outside of Malaysia must secure the “Approved Permits,” or AP, before the vehicle can be imported and sold in the country. And these APs are usually issued by the International Trade Ministry to select auto-import companies controlled by ethnic Malays.

The APs have become a lucrative “middleman” operation, where license holders sell their APs to auto distributors at a hefty price tag. The combination of the permit, various government-imposed taxes and the price of a car are passed on by dealers to Malaysian consumers, who have to pay three times the market price what a similar model would cost in the U.S. and European Union.

The system was due to be scrapped by December of next year, but Mr. Mustapa said that “an in-depth study will be undertaken to assess the impact of this termination….For now, the [licensing] program will remain in place,” he said at a briefing on Monday.

Malaysia and Thailand, both considered “tiger” economies in the early 90s, adopted different automotive policies over the past two decades. In Malaysia’s bid to protect domestic car brands like Proton and Perodua, it has failed to make the Southeast Asian nation competitive in the regional car industry. Protective measures have since prompted foreign car makers to set up production plants in Thailand.

Thailand, now Southeast Asia’s leading car manufacturer, produced 1.21 million cars as of November last year compared with a projected 652,120 vehicles for Malaysia. In 2012, vehicle production for Malaysia reached 627,753 units.

“There were pluses and minuses, losers and gainers in the [decadeslong] national car project,” Mr. Mustapa said. “We would like Malaysia’s auto industry to be more robust.”

The ministry may award up to four manufacturing permits by 2018. The Southeast Asian nation is in talks with three foreign car makers to produce hybrids and fuel-efficient cars.

Mr. Mustapa didn’t name the firms.

But Thailand, even with its continuing political turmoil, will still retain an edge over Malaysia when it comes to attracting foreign car makers, Ms. Chong said. “Thailand has a well-entrenched ecosystem and [auto] infrastructure.”

“By virtue of population size, both Thailand and Indonesia have an edge over Malaysia,” Ms. Chong said. “But, the move to create an energy-efficient vehicle hub is good. It is never too late to catch up with our neighbors.”

Write to Shie-Lynn Lim at shie-lynn.lim@dowjones.com