Financial Crises and Automotive Industry Development in Southeast Asia

Abstract

The automotive industries of Southeast Asia have grown significantly but unevenly. Thailand has outperformed its neighbours in Malaysia, Indonesia and the Philippines with regard to production and, most notably, export volumes. But the Thai auto industry has not exhibited the level of local (indigenous) technology capacity and input growth seen in South Korea, Taiwan and, increasingly, in China. The 1997–98 and 2008 financial and economic crises generally reinforced pre-existing national automotive strategies, but to different degrees: They strongly accelerated an earlier Thai move to exports whose very success weakened pressures for upgrading; encouraged more moderate automotive liberalisation in Indonesia and, to a lesser extent, in the Philippines; but promoted only minimal changes to Malaysia’s relatively protectionist national car strategy. The fact that the crises served more to reinforce than to reverse existing tendencies reflects a broader set of political economy factors that influence national perceptions of crises severity and alternative responses.

Key Words:

• Southeast Asia
• ASEAN
• Asian financial crisis
• global financial crisis
• automotive industry

Notes

¹ This distinction is developed in a manuscript tentatively entitled, The Political Economy of East Asian Automobile Industrialization by Richard F. Doner, Gregory W. Noble and John Ravenhill.

² The commodity crisis in 1986–87 affected the domestic automotive market in Malaysia (Athukorala 2012; Natsuda, Segawa, and Thoburn 2013).

³ And by the end of 2012, Thai auto production had exceeded two million vehicles (The Nation 24 December 2012).

⁴ The six ASEAN countries (Thailand, Malaysia, Indonesia, Philippines, Singapore, Brunei) agreed that the 1992 ASEAN Free Trade Area (AFTA) was to be implemented from 2000 to 2010 with a goal of 0–5% tariff on trade within the AFTA area based on the Common Effective Preferential Tariff, which requires 40% local AFTA content for preferential treatment. AFTA countries do not have a common external tariff and they can modify their AFTA participation claiming general exclusion for, for example, security reasons, sensitivity of select agricultural products, and temporary protection, including for automotive products (as implemented by Malaysia until recently). Vietnam, Myanmar, Laos and Cambodia joined ASEAN after 1992, and they will have to enforce AFTA by 2015.

⁵ This section draws on Chapter 3 of Doner, Noble, and Ravenhill (forthcoming).

⁶ Extensive growth is alabelledled “structural change” to emphasise inter-sectoral shifts (for example, Waldner 1999; Amsden 2001; Imbs and Wacziarg 2003, 63). Intensive growth is similar to upgrading, where the emphasis is on local value added based on inputs from national producers (see, for example, Waldner 1999; Amsden 2001; Gereffi 2005; Kaplinsky 2005).

⁷ Unless otherwise noted, this review draws on Doner (2009, Ch. 7).

⁸ GM received “a standard package of incentives” that included “tax exemptions on export earnings for the first eight years, followed by a 50% tax reduction for the next five years, as well as exemptions from tariffs on machinery imports for the first two years” (New York Times, 31 May 1996).

⁹ This included increasing CKD tariffs while maintaining high duties on raw materials and intermediates but offsetting this protectionism with reduced excise taxes, expanded free trade agreements (FTAs) and regional trade agreements, and special incentives to foreign producers involving easy access to otherwise protected raw materials and intermediates for direct exporters.

¹⁰ Assemblers proposing to produce eco-cars were required to make investments of no less than 5 billion baht; to commit to reaching production levels of 100,000 by the fifth year of production; to meet fuel economies of at least 20 km/litre; to meet Euro 4 emission level or better; to meet global safety levels; and to produce four of five main components locally.

¹¹ See for example The Nation, 10 May 2012. Volkswagen abstained from joining this programme because it could not comply with the required local production to qualify for subsidies due to VW’s lack of high quality local suppliers (Natsuda and Thoburn 2013).

¹² The total of Thai firms is 600 according to Brimble and Sherman (1999) and personal communication from Mike Dunne, Automotive Resources Asia. The Thai Automotive Industry Association lists roughly 525 producers as of 2001 (cited in Brooker Group 2002, 206). The number of first-tier survivors is from Brooker Group (2002, 208).

¹³ Unless otherwise noted this account is based on Doner (1991), Doner, Noble, and Ravenhill (forthcoming), Wad (1999), Wad (2008), and Wad and Govindaraju (2011).

¹⁴ The Malaysian economy’s easy access to and ability to dispense with informal labour also helped the economy, especially after the AFC when many of the workers in the worst hit sectors were migrants “who simply left the country; in effect, Malaysia exported a substantial part of its unemployment” (Haggard and Low 2000, 196).