Conference on Regional Integration in Asia and the Emerging Trade Regime

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1 ITC Geneva, ICRIER, CII Conference on Regional Integration in Asia and the Emerging Trade Regime Supply Chain Linkages across borders in Asia : Automobile Industry Dilip Chenoy Director General SIAM New Delhi 28 March 2007

2 Presentation Outline Asia : Vehicle & Parts Production Overview Export of CBU s ASEAN Exports and Imports Steps in producing a vehicle Global sourcing Automotive Supply in Asia Supply Linkages in Asia Status and impact of FTAs & RTAs in Asia

3 Asia : Vehicle & Parts Production Overview Country Production Million nos. Local firms Foreign firms Parts/Materials Nature of capitalisation Nos. China Local & Foreign India Local & Foreign 530+ Indonesia Local & Foreign 171 Japan Local 468 Korea Foreign & local 913 Malaysia Local & Foreign 117 Philippines Foreign 256 Thailand Local & Foreign 809 Vietnam Foreign 46

4 Auto Industry Growth : (in 000 units) ,430 20,019 North America 17,546 17, ,500 5,906 2,435 9,801 1, Diff % Share NORTH AMERICA % EUROPE % JAPAN 5,906 6, % CHINA 2,435 9,801 7,366 62% SOUTH KOREA 1,460 2,500 1,040 9% ASEAN 1,171 2,703 1,532 13% INDIA 821 1, % AUSTRALIA % TAIWAN % TOTAL ASIA 12,913 24,736 11, % 2,500 Europe Japan China South Korea 1,171 2,703 1, Source: DRI-WEFA ASEAN India Australia Taiwan 12 million units production growth in the period of million units in million units in 2012

5 Production, Trade and Domestic Sales Year 2005 Unit: 1,000 Country Production Export Import Domestic Sales Japan 10,800 5, ,852 China 5, ,762 Korea 3,699 2, ,142 ASEAN 2, ,885 Thailand 1, Malaysia Indonesia Philippines India 1, ,440 Taiwan Total 24,660 16,528 World 64,539 Asia s Share 38.2% Source JAPIA

6 Importance of Asian Auto Market Low growth for auto in developed markets Importance of Asia increasing would be a 10 million market with three hubs China, India and ASEAN. Number of component suppliers would increase. Sourcing from Asia to increase as auto makers increase sourcing from low cost countries Move towards harmonisation of vehicle / parts standards and technical regulations.

7 Export of CBUs by Japanese Auto Manufacturers 2002 Source) Export from Japan: JAMA Others: Global Insight (DRI Automotive)

8 Export of CBUs by N. American & European Auto Manufacturers 2002 Source) Global Insight (DRI Automotive)

9 CBU Export among Developed Countries 2002 Unit: thousand (s) Japan & S. Korea 191 1/ 1,132 2/ 2, / W. Europe 164 2/ United States 99 1/ Source) The Society of Motor Manufacturers and Traders Ltd./ Ward s Communication/ JAMA Note) 1/ France, Germany, Italy, Spain, Sweden 2/ EU 15 Australia

10 6000 ASEAN Exports 5000 USD million Intra ASEAN China YearIndia Japan Korea *Ch Source:, ASEAN Trade Data

11 USD million ASEAN Imports Intra ASEAN ChinaYear India Japan Korea *Ch Source:, ASEAN Trade Data

12 Press Shop Stamping Body Shop Sub/Body Assembly Paint shop Clean Paint body Assembly plant Raw Material Suppliers Steel Aluminium Polymers Component plants Diverse material & processes Foundry Casting of Engine block Forge Forging of High-strength parts Engine Plant Machining Assembly & Test Transmission Plant Machining Assembly & Test Trim Final Test & Lines assembly fix Engine Dress Finished vehicle Into distribution And retail network STEPS IN PRODUCING AN AUTOMOBILE

13 An Example of a sourcing structure of an OEM Preassembly Manufacturing Body-in-white, Painting final assembly Key Suppliers/groups (systems, modules) Components suppliers /groups (components,subsystems) Materials, semi-finished, standard parts

14 Large Scale Effects High Technology Little product variability Light compact products ICs Scale Driven Moderate product variability Moderate weight/bulk Alternators/starter motors Heat Exchangers Hub Units Global 2,000 Km Modules / Systems assemblies Moderate product variability Heavy / Bulky Km Modules / Systems Assemblies Exact in-line sequencing Heavy / Bulky km HVAC systems Fuel Tanks Seats Alarms Dashboards Painted Bumpers GLOBAL SOURCING :THE THEORY

15 Source : Time for a model change, Maxton & Wormald Systems Structure of an automobile

16 GLOBAL SOURCING : PRACTICE Most systems or parts cannot simply be exchanged between different car types or even between different models occupying the same segment. They are typically dimensioned precisely to the requirements of the individual model and have to fulfill very precise interface requirements. Family of suppliers uniquely affiliated to a given vehicle manufacturer Some suppliers large & powerful : supply to many

17 Automotive Supply in Asia Auto parts production increasing in Asia Production of labour intensive parts being transferred to low cost countries Industry in each country at different stage of development China & Malaysia : preferential treatment Thailand & India : Enhancing competitiveness Technical assistance to local companies poor OEMs looking to increase local content Specialist suppliers for steel, plastics, aluminium

18 Supply Linkages in Asia (1) Nissan China & Thailand to supply parts globally Thailand Engine plant would supply to Malaysia and Indonesia Thailand to promote procurement from ASEAN and optimise investments relating to vendors Honda Moved Asia Pacific HQ to Thailand Local component production started in Indonesia, Philippines, Malaysia & Thailand Consolidation of sourcing launched in India Hyundai 10+ Korean suppliers in Thailand supply parts to India

19 Supply Linkages in Asia (2) Toyota Thailand emerging as centre for engines, India & Philippines for transmission For the IMV in ASEAN 90% parts from Thailand rest from ASEAN. CKD exports from Thailand Mitsubishi Tires, sintered parts, wheels and gaskets from Malaysia, forged parts from Indonesia, transmissions from Philippines India OEMs start sourcing from China & ASEAN Steel Preferred supply base Japan & Korea

20 FTAs Status in Asia Japan China India ASEAN Thai Malay Sing Phil Korea Indonesia Japan X S N EPAA EPAA EPAE EPAA N N China X EHPE EHPE India S X CECAA EHPE CECAA ASEAN N EHPE CECAA X N Thai N EHPE EHPE X Malay N X Sing EPAE CECA X FTAA Phil N X Korea N S N FTAA X Indonesia N X S = Studying, N = Negotiating EPA = Economic Partnership Agreement A= Agreed E = In effect EHP = Early Harvest Programme CECA = Comprehensive Economic Cooperation Agreement ( as of 2005)

21 Impact of RTAs & FTAs on Supply Chain Duties lowered and or eliminated within External tariff rates lowered but much higher than Application specific models and variants being developed for and manufactured in ASEAN. Japanese, US and European automakers have moved base to Thailand : Export to ASEAN and other regions Exports of vehicles, parts, components to ASEAN and other markets to grow in volume and type Parts and components for after market sourced principally from the ASEAN. Most global TIER 1 part makers to set up manufacturing facilities in ASEAN linked to local firms. Currently China, Korea and India have negligible exports to ASEAN. OEMs would continue to determine sourcing.

22 Thank you

23 FTAs in Asia Pacific Region (as of Jan. 2004)

24 MFN IMPORT DUTIES IN ASEAN INDONESIA MALAYSIA PHILIPPINES THAILAND PASSENGER CARS CKD 25% - 50% 25% - 35% 10% 33% CBU 45% - 80% 80% - 200% 20% - 30% 80% COMMERCIAL VEHICLES CKD 25% 0% - 40% 3% 10% - 33% CBU 5% - 45% 30% - 200% 15% - 30% 30% - 60% MOTORCYCLES CKD 5% - 25% 5% - 30% 3% 0% CBU 35% - 60% 60% - 120% 30% 60%

Promoting Continued Growth

Promoting Continued Growth of the Automobile Industry in the ASEAN Region Fujio Cho Chairman, Japan Automobile Manufacturers Association Contents Intro: The World Automobile Market 1. The Automobile Market