Volkswagen ‘to set up in Thailand’

EUROPE’S biggest car-maker, Volkswagen, reportedly is one of 10 major auto manufacturers preparing to collectively invest billions of dollars in Thailand to produce an avalanche of eco-friendly cars by 2019.

The investment would give Volkswagen its first plant in the “Detroit of the east”, opening the door to a major untapped market in Asia for the German manufacturer, as well as duty-free imports into Australia.

The Thai government-backed Eco Car Phase 2 program requires each manufacturer to produce a minimum of 100,000 cars a year in return for lucrative incentives to produce new fuel-friendly cars for both local consumption and export.

The Thai Board of Investment says the scheme has generated projects valued at 139 billion baht ($4.64b), with fresh plans to produce 1.58 million vehicles a year – half of them from manufacturers new to eco car production in Thailand.

Many of the cars are expected to end up on the Australia market under the scheme, applications for which closed on March 31.

General Motors has gone public with its commitment for the project, saying it plans to build a new Chevrolet model at its Rayong plant as part of a major expansion to turn the factory outside Bangkok into a global manufacturing hub (see separate story linked below).

The Bangkok Post reports that five existing mini-car manufacturers in Thailand – Honda, Mitsubishi, Nissan Toyota and Suzuki – have put their hand up for the new program after previously investing in Eco Car Phase 1.

This time, they apparently will be joined by five others – GM, Ford, Mazda, Volkswagen and China’s SAIC (Shanghai Automotive Industry Corporation).

The biggest interest centres on Volkswagen, which is yet to confirm or deny the report.

The ambitious German car-maker is yet to establish a car manufacturing base in Southeast Asia – a glaring gap in its global empire and a stumbling block to its ambitions for world sales leadership against GM and Toyota.

Volkswagen Group Australia general manager communications Karl Gehling said he knew nothing of any plan to establish a manufacturing base in Thailand.

However, he agreed it would make sense for the company to consider such an operation somewhere in Southeast Asia to help bolster the company’s presence in the region.

A move into Thailand would give VW Group Australia access to duty-free vehicles, as Australia has a free-trade agreement with that country – a fact many of VW’s competitors are already taking advantage of.

It would also shorten supply chains and free VW from expensive European labour costs and Euro exchange rates, at least on one or two models such as the Up and Polo.

Under the Thai Eco Car Phase 2 scheme – which appears similar in some aspects to Australia’s defunct Green Car Innovation Fund – car-makers must produce a vehicle with a fuel consumption under 4.3 litres per 100km and CO2 emissions under 100 grams per kilometre.

Petrol engines must be 1.3 litres or under, while diesel engines can be up to 1.5 litres. Engines must comply with Euro 5 emissions regulations.

The car-makers must invest at least 6.5 billion Thai baht ($A217m), and start producing the cars by 2019. Within four years, they must achieve an annual production rate of 100,000 units.

In return, the manufacturers get tax breaks, including 90 per cent discounts on tariffs on imported components.

At least one of the new Thai-built products is expected to be confirmed soon for Australia – Suzuki’s Celerio micro hatchback.

This product is set to replace the Indian-sourced Alto in the Australian range from early 2015. Production is slated to start in Thailand in May, firstly for ASEAN markets, ahead of Europe and Australia.

This product should easily qualify for the CO2 emissions limit applied by the Thai government, as it is said to emit just 85g/km of CO2 from its dual-injected 1.0-litre, three-cylinder engine.