May Arthapan, Director, Asia Pacific Forecasting
17 April 2019
17 April 2019
Asia auto: what to expect when you are not expecting
No, this is not a blog about human procreation!
In Asia, expectations for the car business are not that high these days, especially when you take China out of the growth equation. Nevertheless, many in the industry are counting on India and Southeast Asia to pick up some of the slack and emerge as the next engine for growth at some stage in the future. But that stage could be long into the future … and here is why.
The economies of India, Indonesia and Thailand operate with tremendous frictions, which naturally cause these countries to progress more slowly, particularly when compared to China.
There is no denying that the Indian vehicle market has been growing very fast – it has, in fact, been one of the world’s fastest-growing markets over the last 15 years. Unlike China, however, India’s path towards growth has not been nearly as smooth. India’s three deficits and fragile banking system are responsible for its vulnerability towards changes in key macro factors such as inflation, interest rates, capital outflows and currency fluctuations.
The most recent woes in India’s vehicle market to have contributed to its latest weakening rest in the softening macroeconomic factors that led to one of the worst festival seasons the market has ever seen in terms of car purchases during September-October 2018. Passenger Vehicle inventory soared to 60 days, from a normal level of 30 days, prompting ongoing production cuts in a bid to resolve the situation.
The frictions are even more prevalent in the other two emerging markets of Indonesia and Thailand. India’s market development path has, in fact, been far less turbulent than those of Indonesia and Thailand.
Much like India, Indonesia’s market is vulnerable to rising inflation, capital outflows and currency fluctuations. But it must also contend with an economy that is highly susceptible to the performance of the global commodity sector.
Political uncertainly is Thailand’s single most alarming risk – and inherent friction – to its economy and industries. The situation is even more disturbing in that, after more than a decade of instability, there is still no solution in sight. The March general elections seem to have created more of a problem than a solution to the ongoing political conflict. And even if a coalition government were to be created, it would lack a sufficient majority to ensure continuity.