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Indonesia could overtake Thailand in "Detroit of the East" stakes in medium term

Indonesia is likely to steal Thailand's position as the "Detroit of the East" once the ten-member Association of Southeast Asian Nations (ASEAN) undergoes economic integration over the next few years. That is the conclusion of a new report from the Economist Intelligence Unit (The EIU), entitled "ASEAN automotive: Looking to 2015".

Indonesia is likely to steal Thailand's position as the "Detroit of the East" once the ten-member Association of Southeast Asian Nations (ASEAN) undergoes economic integration over the next few years. That is the conclusion of a new report from the Economist Intelligence Unit (The EIU), entitled "ASEAN automotive: Looking to 2015".

The ASEAN members intend to form the ASEAN Economic Community (AEC) at the end of next year, further liberalizing trade and increasing economic cooperation. At this stage, there is a high chance that this deadline will be missed, according to the report, due to the immense challenges of bringing together this disparate group of countries-from wealthy Singapore and Brunei to impoverished Laos and Myanmar. Nevertheless, tariff and non-tariff barriers are expected to fall, freeing up trade and labor markets across the region, increasing competition and driving economic growth.

Thailand currently dominates in the auto industry stakes, but Indonesia could rival or even overtake it in the medium term.
Companies are already gearing up for the opportunities and threats that the AEC will bring. Vehicle-makers in particular now see this fast-growing region as a focus of their global strategies. The ten ASEAN nations already boast total vehicle sales of around 3.6 million units. Over the next five years that is likely to rise by one-third to around 5.3 million units, according to The EIU forecasts-on a par with Russia and Brazil combined.

The most noticeable effect of integration is likely to be the intense competition to attract investment in automobile production assets. Using the EIU data and forecasts to assess the attractiveness of the region's vehicle-producing nations, and their future prospects, the report concludes that:

  • Thailand's status as the "Detroit of the East", exporting more cars than the rest of the ASEAN region combined, is unlikely to change over the short term.
  • Over the medium to long term, however, Indonesia's huge population and growing economy mean it should become the biggest producer and consumer of cars in the region.
  • ASEAN's third-largest producer, Malaysia, is likely to suffer under the AEC, as its indigenous carmakers, Proton and Perodua, face greater foreign competition.
  • Other nations within the ASEAN grouping, notably Vietnam and the Philippines, should benefit from the emergence of a unified ASEAN auto market, but they will need to ensure that their business environment is welcoming for new investors.

Commenting on the report, The EIU's lead auto analyst, Ana Nicholls, said: "This is a huge opportunity for the ASEAN region to attract investment from global carmakers in order to serve both domestic and regional markets. Given the auto industry's proven ability to underpin economic growth, governments need to make sure their countries are ready.

A free version of the report is available for download here.

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