Industry Trend Analysis - Domestic Production To Enhance Subaru's Competitiveness - SEPT 2017

BMI View : Fuji Heavy Industries plan s to start produc ing Subaru cars in Thailand in 2019 will enhance its competitiveness by being closer to its customer base and more responsive to changing market conditions. That said, the customer loyalty and market dominance of Honda, Toyota and Mazda will pose challenge s to Subaru's efforts at wrestling away significant market share for itself .

Fuji Heavy Industries (FHI) announced plans to invest THB5.1bn (USD150mn) to start producing Subaru vehicles in Thailand as part of a joint venture (JV) with TC Manufacturing and Assembly Thailand (TCMA TH). The plan states that the JV - to be called Tan Chong Subaru Automotive Thailand - will aim to start Thai production in 2019, with a production capacity of 10,000 cars a year.

Given this added production, we are revising up our forecast for passenger car production to growth of 6.0% in 2019, up from 5.4% previously. Furthermore, we now forecast average annual growth of 6.3% in passenger car production over 2019-2021, up from average annual growth of 5.9% previously.

Subaru Car Assembly Lifting Production Outlook
Thailand - Passenger Car Production, Units
f = BMI forecast. Source: OICA, BMI

Move To Enhance Competitiveness But Challenges Remain

By producing locally and not having to import its vehicles from Malaysia, we believe that the investment will help enhance Subaru's competitiveness by being closer to its customer base and thus able to respond more quickly to their needs and changing market conditions. This added competitiveness will help support growth in the automaker's sales in Thailand, where it held 0.1% market share in the passenger car segment in the first five months of 2017 ( see chart below). Currently, the customer loyalty and market dominance of its Japanese rivals Honda, Toyota and Mazda pose major challenges to Subaru's efforts at wrestling any sort of significant market share away from these brands.

Local Market Tough to Crack
Thailand - Passenger Car Brands By Market Share, 5M17, %
Source: Toyota Motor Thailand, BMI

Robust Growth In Car Demand To Create Supportive Market

Robust growth in car demand in Thailand over 2017-2021 will help create the supportive market for Subaru to continue to grow its car sales. We forecast passenger car sales in Thailand to grow at an average rate of 5.3% per year over the next five years on the back of a favourable outlook for consumer spending in the country.

Our Country Risk team forecasts private consumption in Thailand to average annual growth of 4.0% over 2017-2021, which will be bolstered by subdued inflationary pressures. Inflation is forecast to average 2.2% over the next five years, remaining well within the Bank of Thailand's 1.0-4.0% target range, according to our Country Risk team. These subdued inflationary pressures will bolster consumer purchasing power and, therefore, support our positive outlook for passenger car sales growth.