How to Play the Asian Auto Markets

By Peter Pham - September 13, 2012 | Tickers: F, GM, HMC, THD, TM | 0 Comments

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Asian countries, especially Thailand, Indonesia, and India have been emerging as some of the fastest growing automobile markets in the world.  Thailand is now the 13^th largest auto market, eclipsing Mexico and Australia through the first half of 2012 in number of vehicles sold, up 46% year over year.  These markets are becoming affluent enough that Daimler is now trying to bring its upscale Mercedes brand to Asian markets, especially to these rapidly expanding countries.

According to the board member, Wolfgang Bernhard, the demand for Mercedes M and GL-class SUVs is strong enough that expanding production to include Thailand and India makes good business sense. Daimler will also serve the rest of SE Asia with cars from these factories.  In all 3 countries the SUV is a very popular choice as road conditions are spotty in many places.  The pickup truck is practically revered in Thailand, especially the Toyota (NYSE: TM) Hilux, which is, by far, the best-selling vehicle in the country.  No one buys more pickups per capita than Thais, not even Americans.

Last year, auto exports contributed about 13% to the kingdom’s total exports of 6.18 trillion baht, making it the second biggest export sector after electronics and computer parts, according to data from the Commerce Ministry. According to the World Bank, the auto industry accounts for 12% of Thailand’s GDP.  Isuzu’s D-Max pickup truck, which is a re-branded Chevrolet Colorado, is the 2^nd most popular truck in Thailand.  That market is so important to GM (NYSE: GM) that the latest version of the Colorado was introduced there last fall at the Bangkok International Motor Show.

According to Mercedes’ Thailand division the market for used luxury cars grew 12% in 2011.  Further proof that as Thailand climbs up the income charts and a greater proportion move into the middle class, more premium brands will be demanded.  In India the bulk of the cars sold are still sub-compact and smaller cars.

U.S. manufacturers are having a difficult time in Southeast Asia and India.  Ford (NYSE: F) holds just 3% market share in China.  Sales in India dropped 21% year over year in the most recent quarter. Japanese manufactures have the low end of the market in their pocket. Suzuki leads in India, while Toyota is strong in Thailand and Indonesia.  Honda (NYSE: HMC), like Ford, is weak in both China and India.

Daimler AG's Mercedes-Benz will manufacture the SUV kits in Alabama and do final assembly locally in Indonesia, Thailand and India. Mercedes' main competitor, BMW, has been selling SUVs built at its Spartanburg, S.C., plant for several years.

Looking at the changing landscape of the automobile industry, a number of things stand out.  China’s growth so far in 2012 has been anemic.  Even the U.S. (data not shown) has seen a 14.8% rise in auto sales year over year, most likely due to the average car driven in the U.S. is 10.8 years old and they simply need to be replaced.  This trend will not last with sub 2% GDP growth and yawning, structural U-6 unemployment.  Note that Daimler made this announcement after the first half sales statistics showed their targeted markets to be the three fastest growing markets in the world.  Indonesia reported GDP growth of 6.5% for the first half of the year. Malaysia is highlighted as well because their car sales have been flat but GDP growth is picking up and showing remarkable resilience in the face of the slowdown in China.

The situation in Southeast Asia is mixed at this point with countries like Vietnam going through serious financial pains while others remain mostly impervious to the world’s slowdown.  This move by Daimler is another example of why Southeast Asia will likely weather any global slowdown better than many.  Playing Thailand through the The iShares MCSI Thailand Index ETF (NYSEMKT: THD) which is up 17.5% on the year so far, outperforming the S&P 500 is a solid play on the region. It’s paying a 3.0% dividend as well. Thailand’s economy has not fully recovered from the effects of the 2011 flooding either, with GDP growth coming in at 4.5% for the first half of 2012. 

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