ROAD WARRIORS : From the looks of Bangkok’s gridlocked streets, you wouldn’t think there was room for another car in Thailand. In fact, it’s one of the world’s hottest markets, and Detroit’s Big Three are starting to challenge Japan’s dominance.
The sweat rolled down Chrysler executive Bill Kennedy Jr.’s face as he raced to complete the paperwork so that his nervous customer could be driven down a certain street in Bangkok in her new Jeep Cherokee at exactly 7:49 a.m.
With just minutes to spare, they closed the deal, and Kennedy handed over the keys to the older Thai woman, her astrologer’s wishes satisfied.
Back home in Michigan, where Kennedy oversaw the marketing of the Dodge Ram pickup truck, astrology was not included in company sales manuals. But as this Chrysler veteran is fond of telling colleagues by fax, by phone and occasionally in person, this is not Motown.
What Thailand is--at least in the estimation of Detroit’s Big Three auto makers--is a rapidly developing economy whose people have never been colonized, who have one of the region’s fastest-growing economies and who love their cars with such a passion that the roads are among the most clogged in the world.
“I won’t stand for jokes about guys in loincloths peddling cars in a grass hut,” said Kennedy, regional sales manager for Chrysler’s Southeast Asia division. “These showrooms will surpass any showrooms in the United States. . . . This is a sophisticated market.”
Last year, the 58 million residents of this Southeast Asian nation registered 485,000 new vehicles, a number expected to double by 2000. Already the world’s 15th-largest vehicle market, Thailand was second only to the United States in sales of one-ton pickup trucks, the vehicle of choice for hauling friends, fowl and fuel around Bangkok’s gridlocked streets.
For Kennedy to succeed here, he must cope with astrologers, government red tape and a shortage of skilled mechanics. But above all, he must be able to outsell the savvy Japanese brands that control 90% of what has become one of the world’s fastest-growing automobile markets.
While U.S. trade negotiators have focused their attention on a bitter battle to force open Japan’s automobile and auto parts markets to American firms, a less publicized but no less significant competition is under way for lucrative markets in other parts of Asia such as Thailand, China, Vietnam, Indonesia and Malaysia.
Thailand, which U.S. auto makers virtually abandoned more than a decade ago, is the hottest of them all.
Later this month, Chrysler, in a joint venture with Swedish Motors Corp., will begin producing Jeep Cherokees in a Bangkok facility that currently manufactures Volvo sedans. Ford, which closed its assembly line here in 1976, is nearing a joint-venture agreement with Mazda to produce a compact pickup truck. General Motors, which currently ships its European-made Opel cars to Thailand, is stepping up its sales and exploring the possibility of local production.
A spokesman for Toyota Motor Thailand Co., Thailand’s No. 1 auto maker, downplayed the new kids on the block: “In the past, the U.S. auto business has not been successful in this market.”
But the Japanese aren’t taking their share of this lucrative market for granted. Toyota, whose sales in Thailand represent its second-largest foreign market behind the United States, will double production capacity next year when it completes a giant plant outside Bangkok. Mitsubishi, Nissan and Honda are expanding their operations in Thailand amid rumors that some of these firms plan to move their entire pickup truck production here from Japan.
Besides responding to the competitive pressures, Japan’s beleaguered auto makers are shifting domestic production to Southeast Asian countries like Thailand to offset the negative impact of the high yen. The stronger yen increases the costs of auto parts that were previously manufactured in Japan and shipped overseas for final assembly.
Maryann Keller, an auto analyst with Furman Selz in New York, said Japanese companies are far better equipped to compete in third-country markets because of their efficient production systems and decades of experience managing small and large operations around the world.
“Toyota has thousands of people employed in logistics, people whose purpose in life is to ensure that the parts or kits arrive where they’re supposed to on time, that there are service people in place for those vehicles and that they have taken care of any warranty issues that may arise,” she said. “That kind of logistical support doesn’t exist in American companies.”
But Keller and others agree that Detroit’s Big Three are taking the Asian auto market more seriously this time around, spurred by estimates of up to 40% growth compared with 2% to 3% growth in the United States and Europe.
“Their sincerity is partially a reflection of an economic reality they know all too well,” Keller said. “The American marketplace is brutally competitive and not growing. The European marketplace is brutally competitive and not growing. And so the natural course would be to look to the Asia-Pacific region, where you have booming economies and rapid personal income growth.”
While Thailand represents an important market on its own, it is also viewed as a logical production platform for automobile parts destined for other parts of Asia. That becomes increasingly attractive as the Assn. of Southeast Asian Nations--Thailand, Indonesia, Malaysia, the Philippines, Singapore and Brunei--move toward a free-trade zone based on the creation of complementary, rather than competitive, industries.
So far, Japan, Thailand’s biggest investor and aid provider, has fueled much of the country’s industrial expansion. But in the past year, Thai business and government leaders have begun recruiting U.S. investors with the message that their country is anxious to broaden its economic ties and reduce its dependence on Japan.
This desire to offset Japan’s growing economic clout in Southeast Asia could help U.S. auto makers in their high-profile bid to enter the Thai market, according to a senior U.S. trade official based in Bangkok.
But Chrysler and other American companies will first have to overcome a host of obstacles, including their uneven track record here, cultural barriers, high tariffs, bureaucratic red tape and a shortage of skilled middle managers and technicians.
The Big Three’s record in Thailand is spotty. In the 1950s and ‘60s, wealthy Thais drove the large U.S. automobiles that were then symbols of prestige around the world. But as gas prices soared and the roads became more crowded, those American gas guzzlers lost their appeal.
In the 1970s, the Thai government began implementing local content rules designed to force foreign auto makers to source more of their vehicles domestically. In 1977, the government banned the import of fully assembled cars.
U.S. companies balked at investing huge sums of money to establish production facilities for a market that was small, poor and thousands of miles away from their Detroit headquarters. Service and spare parts centers for American cars were a rare commodity. Western auto makers also failed to do their homework, sending over automobiles that hadn’t been engineered to perform well in the tropical heat and humidity.
For a company such as General Motors, a much greater concern at that time was the Hondas, Nissans and Toyotas that were flooding the U.S. market.
“When money is scarce and you’re just trying to keep from going under, there’s not a lot of money available for the people who say, ‘Hey, I can sell 6,000 units in Thailand if you give me the people and resources,’ ” said Mike Meyerand, a GM spokesman in Detroit.
The Japanese, on the other hand, had the product--a small, right-hand-drive car--and the willingness to invest huge sums of money in production facilities that were small and relatively inefficient, according to Richard Doner, author of “Driving a Bargain,” a book on the automobile industry in Southeast Asia. They also persuaded their most important subcontractors to relocate in Thailand, ensuring a steady supply of parts to meet the Thai government’s local-content requirements.
In spite of political turmoil and strong anti-Japanese sentiment among Thai nationalists in the 1970s, the Japanese auto makers expanded and cultivated a network of local suppliers, service centers and dealers.
Chumpol Phornprapha, one of Thailand’s largest dealers of Suzuki motorcycles and Toyota cars, said the Japanese earned the loyalty of Thai customers and business partners by sticking it out through the bad times.
“They [the Japanese] are into group-building,” said Phornprapha, the chairman of S.P. International Co., a conglomerate that registered more than $1 billion in sales last year. “When somebody suffers, they help them. What would Chrysler or GM do if one of their suppliers suffers? They would [let them] go bankrupt.”
David Howard, president and chief executive of Thai Chrysler Automotive Ltd., said Chrysler has learned its lesson and intends to write a new ending to its story in Thailand.
“I think we’ll be successful as long as the commitment is there,” he said. “But people still ask, ‘Why do something for the Americans if they are not going to be here tomorrow?’ ”
In the name of free trade, the Thai government has lowered barriers and dropped the ban on imported vehicles. But it still places a high priority on developing its own auto industry. Thus tariffs and other levies on imported vehicles remain exorbitant, driving the retail price of a vehicle like the Cherokee to triple its U.S. price.
“Americans are knocking very hard on the door, but you have to keep in mind that it’s a highly regulated industry and those on the inside have no inclination to welcome newcomers,” said Michael Dunne, president of the Bangkok-based Automotive Resources Asia Ltd. “Detroit has come late and will have to push their case very strongly.”
U.S. government officials and business executives said the barriers for foreign auto makers in Thailand, though numerous, are at least well-defined in contrast with the invisible barriers--such as the rigorous inspection system--that exist in Japan.
“Here, you know what the brick wall looks like before you run into it,” Kennedy explained.
Chrysler, the first U.S. auto maker to re-enter the Thai market, has scored one big hit. After three years, over strong opposition from Japanese auto makers, Chrysler got the Thai government to reclassify sport-utility vehicles so that its Jeep Cherokee will avoid at least a 36% tax levied on imported passenger cars.
Howard said the close ties between Japanese auto makers and their suppliers could also pose problems for U.S. companies. He cited an instance where Renault of France, his former employer, ran into problems getting a key part from a Japanese supplier whose major customer was Nissan, a Renault competitor.
“We will probably have this problem with the Cherokee once it becomes successful,” he said. “They [the Japanese auto makers] tolerate it as long as they’re not being threatened.”
Chrysler and other American auto makers hope their U.S. parts suppliers will join them. Earlier this year, the U.S. Department of Commerce helped bring a group of auto parts suppliers to Thailand to explore the market. Last year, Dana Corp. became the first U.S. auto parts supplier to open a plant in Thailand. Its primary customer is Nissan, which buys Dana parts for its transplant operations in the United States.
In a gleaming downtown Bangkok dealership, built in less than three months on the site of a shantytown and pig farm, Chrysler is preparing the way for the Jeep Cherokee.
The Vietnam War gave the Jeep widespread name recognition throughout Southeast Asia. The challenge is upgrading the Jeep’s image from that of a military vehicle to a high-class sports-utility vehicle, since the Jeep’s $60,000 price tag puts it out of the reach of all but the wealthiest Thais.
The first step is building a network of reliable dealers throughout the country, so that Jeep owners are never more than a few hours from a service center and spare parts. To combat the severe shortage of skilled technicians, Chrysler queries its Bangkok customers about their favorite auto repair facilities and then covertly recruits their employees after hours.
Chrysler is launching an aggressive television and print advertising campaign designed to woo the young Thai men most susceptible to the call of the American wild.
Nathapol Karnasuta, the flamboyant host of “Men’s Hour,” a popular Thai TV talk show, became one of Jeep’s biggest boosters after he participated in a Jeep publicity trip into an isolated region near the Thai border. Last year, the company sold 500 imported right-hand-drive Jeep Cherokees in Thailand.
One recent buyer is businessman Visai Sothiwanwongse, who purchased a Jeep Cherokee to navigate the rough roads between Bangkok and his munitions factory in an isolated part of the country. He said he chose the Jeep for its durability, powerful engine and price. His other choice, a Land Rover, was more than twice as expensive.
“The engine is quite good but mostly it’s the reputation of the four-wheel-drive vehicle produced in the United States,” said the U.S.-educated executive, who also owns a Porsche and a Mercedes-Benz.
Visai said Chrysler still needs to do some homework. Here in Thailand, the wealthy may want to buy the Jeep’s rugged image but they are not likely to be behind the wheel. He said the Cherokee’s back seat is not designed for people who spend their day conducting business over mobile phones while their drivers navigate the potholes.
“It’s built for kids,” he said of the back seat.
But Visai will get his adjustable headrest, armrest and other creature comforts. He has already installed a custom seat built for his Jeep Cherokee by Swedish Motors.
“The Jeep will be very successful if they learn what Thai people want,” he said.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Driving Mad
Thailand is Asia’s hottest market for new cars and trucks, with sales levels that are drawing renewed interest from U.S. manufacturers. But while booming one-ton pickup sales have made Thailand the world’s second-largest pickup truck market, they have added to Bangkok’s traffic-clogged streets, where speeds average 5 m.p.h. Some facts and figures on Thailand’s traffic woes:
Growth Market
Total sales, in hundreds of thousands of vehicles:
Total vehicle sales One-ton pick-up sales 1994 4.9 2.6
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THAILAND: LIFE BEHIND THE WHEEL
* It’s EZee: Thais spend so much time in their cars--with the travel time to work averaging at least two hours each way--that one of the hottest-selling items in Bangkok is a portable urinal for the car dubbed the “Ezee-Pee.” The devices have become standard in taxis and many family cars.
* Concrete Jungle: Most of Bangkok’s canals--which lent the city the nickname “Venice of the East”--have been paved over to make room for more than 3 million cars and nearly as many motorcycles. This is quadruple the number of autos on city streets 10 years ago.
* Hello?: Cellular phones are popular among businesspeople who take advantage of 12-minute waits at red lights to make calls. Experts estimate commutes on streets covering only 9% of Bangkok’s surface area--compared to byways that cover 25% of Los Angeles’ surface area--eats up an average of 40 working days a year.
* Speed Standing Still: Congestion is so intense that a seller of European luxury cars took to promoting a device called the “chassis dynamo-meter.” The system allowed customers to simulate highway speeds during test drives without ever leaving the showroom.
* Railing at the Woes: Officials hope to ease congestion on the country’s 19,739 miles of road with the construction of $2 billion worth of mass transit and rail projects.
* The fifth necessity: In Thailand, where the vehicle market averaged a growth rate of 30% over the last few years, natives often refer to their autos as the fifth necessity of life--behind food, lodging, medicine and clothing.
Source: Automotive Resources Asia Ltd., Chrysler Corp., Times reports, U.S. Trade & Development Agency, wire reports.
Researched by JENNIFER OLDHAM and EVELYN IRITANI / Los Angeles Times
