Thailand Trucking Market 2009

Solidiance examines the current Thai truck market and growth perspectives

November 2009

Trucking industry in Thailand:

no crisis

Thailand commercial vehicle market outlookTrucking Industry in Thailand: resilient to crisis

Commercial vehicle market in Thailand has shown unexpected resistance to crisis

“At the beginning of this year, Hino believed that exportindustry which contributes for about 70% of Hino salesin Thailand will completely stop expanding. Thus, theydecided to decrease their production to 30% of what isnormally produced.

It turned out that a lot of clients here believe that theeconomy will be better by the end of this year, so theydo not stop buying trucks. These cause Hino trucks torun out of stock and loose sales opportunities.”

Hino Dealership Manager in North East Thailand

The Thailand truck market is relatively modest in terms ofsize; with only 17,620 units sold last year, compared to thepassenger vehicle market with more than 1 million unitsproduced and nearly 600,000 units sold in 2008.Nevertheless, Thailand is the first market for commercialvehicles in ASEAN, beyond Malaysia and Indonesia.

Japanese truck manufacturers, who dominate the passengerand commercial vehicle market in Thailand, estimated inearly 2009 a negative growth of 30% to 40% in the truckmarket. But the situation is not as dramatic as they imagined,and mid this year, they have re-forecasted about negative5% to 15% growth for the same year.

Solidiance study shows that in some parts of the country,truck manufacturers have difficulties to keep up withdemand of new trucks. For instance, Hino predicted forecastaccording to the Consumer Confidence Index andimport/export forecast for Thailand. For 2009, Hinoforecasted negative growth of 30% as compared to 2008and ultimately reduced production of trucks by 30% for 2009.As of August 2009, Hino already had run out of stock onmany models.

Sales, which in general have dropped far less than expectedshould rebound in 2010. Many businesses in Thailand havepostponed purchases of new and replacement trucks for thenext following years. This is a major force that will pushsales of trucks to approximately 24,000 by 2012, reachingthe levels of 2006.

Market size of commercial trucks, Thailand

Units GDP Growth

Source: DLT Thailand

OEMs in Thailand have underestimated the rebound of

the Thai commercial vehicle market and are now facingdifficulties to supply trucks in some parts of the Kingdom

-6%

-4%

-2%

0%

2%

4%

6%

0

5,000

10,000

15,000

20,000

25,000

2006 2007 2008 2009F 2010F 2011F 2012F

Fuso Hino Isuzu Others GDP

2


Japanese OEM largely dominate the Thai truck market withIsuzu, Hino, Mitsubishi Fuso and Nissan UD heading themarket position with more than 97% of market share in2008. But out of these 4 companies, Isuzu and Hino seemto be definite leaders, with 83.8% market share in 2008.

LCVs and HCVs are the 2 best selling segments of trucks inthe Thai market:

The LCV segment is largely dominated by Isuzu, sellingconstantly on average 70% of the 2-4 ton trucks segment inthe domestic market. Hino comes second selling constantlyon average about 60% of the 4-5 ton trucks.

In the MCV segment, Hino has slightly better sales thanIsuzu. Dealers and end users’ perception of Hino trucks isvery good, making this brand the best in this segment andoffering a wide range of durable and reliable trucks.

In the HCV segment, Hino and Isuzu also dominate themarket with an almost equal market share of 40% for Isuzuand 38% for Hino.

Duopoly market with 2 Japanese OEM dominating the Thai truck market

Market segmentation by tonnage, 2008

LCV (2 – 10 tons) MCV (11 – 20 tons) HCV (21 tons and above)

Imported trucks have been slowly gaining presence inThailand within the MCV and HCV segments. Europeanbrands like Volvo and Scania are increasing their marketpresence, but it remains small (less than 2% of the market).European trucks have a high end image, and are deemed asmore reliable than Japanese trucks. Their price range is veryhigh (tariffs on imported trucks are 40%, taxes are 200%)which will continue to limit their sales volumes. Europeantrucks are used in specific industries in Thailand, fortransportation of oil and gas products, for instance.

Chinese brands like Golden Dragon and DFM, are trying togain presence in Thailand, but their market share is still verylow. Thai trucks dealers do not believe, for a large majority,in the potential of these trucks which are deemed to be veryfar from Japanese trucks in terms of reliability and quality.

54

Country of origin 4.3

Price3.8

Technology

Reliability

Product quality

3.8

3.7

3.3

Ranking of criteria when purchasing imported trucks

321

Source: TAI, Solidiance analysis 2009

Source: Solidiance analysis 2009 Sample: 50

LCV

Isuzu 50%Hino 41%

Fuso 6%Others 3%

Fuso 10%

Isuzu 31%

MCV

Hino 39%

Others 20% Fuso 8%

Isuzu 40%

HCV

Hino 38%

Others 14%

3


35%

14% 13% 12% 12% 11%

3%0%

5%

10%

15%

20%

25%

30%

35%

40%

Solidiance study shows that the transportation industry is thelargest purchaser of trucks in Thailand in 2008 and 2009.This sector reached a market value of USD 5.8 billion in2008. The largest players are DHL, FedEx and UPS with atotal share of more than 80% of the whole market.

The government represents the second largest purchaser oftrucks although purchases are made randomly. The Thaigovernment purchases trucks types such as garbage trucksor street sweeper trucks.

Construction companies are also an important segment oftrucks users, but the difficulty with this sector is that in 2009,investments are forecasted to halve.

Usage of trucks per industry, 2008

Fuel efficiency as the first criteria when purchasing trucks

Study shows that end-users have generally very goodknowledge regarding trucks. Additionally, most buyers havealready solid preferences for specific brands and know aboutperformance levels of the trucks they are willing to buy.Unexpectedly, price was not the first factor quoted whenpurchasing trucks.

Fuel efficiency comes as the first criteria of purchasebecause it constitutes a large percentage of end-user’soperating cost: fuel can represent up to 60% of operatingcosts.

Availability of spare parts comes as a third criteria ofpurchase because it is an important element to ensurebusiness continuity. The two market leaders have 44 and 603S dealerships respectively. It is a key criteria for a largepart of end-users who are particularly concerned with spareparts availability.

1stChoice

2nd

Choice

3nd

Choice

Sample: 50

Key factors when purchasing a truck

Source: Solidiance analysis 2009

In 2008 & 2009, the largest buyers of trucks are logistics, government and construction companies

Source: Hino, Fuso, Solidiance analysis 2009

Fuel efficiency 48%

Price 17%

Volume Cap.11%

Price33%

Fuel Efficiency21%

Customization12%

Price20%

Spare parts 28%

Aftersales21%

4


Regulation challenges:

Asean member states plan to move another step forward inthe liberalization of their trade policies by completelyeliminating tariffs by 2015. Experts believe that one of themain consequences of this liberalization would be amodification of the power struggle between truck makersand dealerships, which means that the leverage which is nowon the side of manufacturers will switch to truck dealers.

As the elimination of tariffs will lead to many more foreignbrands imported to Thailand, it will increase competitionbetween manufacturers. Dealers will beneficiate from thiscompetition and could impose the end of exclusivedealerships. It would allow them to share brands, servicesand parts and to offer to their clients a much wider portfolioof vehicles than now.

Fostering the added value creation in the truckmanufacturing

Thai authorities are currently trying to convince Japanesemanufacturers to produce more vehicles locally, and totransfer more technology and production know-how toThailand. One of the best illustration of this phenomenon isthe production and design of high value parts which hasalready switched from Japan to Thailand for the pick upscars. This trend is growing with other high value models,such as the Toyota Camry Hybrid, which is now produced inThailand.

Thai authorities are pushing towards the same trend for thetruck industry. It has already started with Hino trucks nowproducing more of their high value parts in Thailand, inpartnership with Toyota. Experts predict this trend willcontinue for the years to come, consolidating the lead ofThailand in the region.

The challenges at stake in the Thai trucking industry in the forthcoming years

Environment policies and new technologies for trucks:

If we exclude Japan, Thailand is at the forefront ofenvironmental policies in Asia in the truck industry,having changed gas emission standard this summerfrom Euro 2 to Euro 3, a more stringent regulation foremissions.

However, there is no clear sign that this will impact thetype of motorization in the next years. Experts, truckdealers and end-users interviewed in this study aredoubtful about the NGV trucks imposing their standardon the Thai market because genuine NG trucks areconsidered too expensive. The consequence is that end-users are customizing their own trucks to make themrun with gas. This results in poor efficiency andincreased number of breakdowns which does not giveNGV systems a good image. Biodiesel could be analternative, but industry experts doubt that this can bewidely used as a substitute at the present moment norin the near future.

“The price for genuine NGV trucks withappropriate engine is THB 700,000 more than aclassical truck running with gasoline. This is whythere is a lot of customization made by truck end-users when buying NGV systems. They adapt itthemselves to their trucks which are running withthe same engine as classical trucks working withgasoline”.

Owner of a Thai logistics company, running600 trucks based in Greater Bangkok

5

Thailand commercial vehicle market outlookTrucking Industry in Thailand: very resilient to crisis

Solidiance is a marketing and innovation strategy consulting firm with focus on growth in Asia Pacific. The company works closely with Automotive clients tooutpace the competition, close gaps in growth and capitalize on market opportunities. With offices in Singapore, India, Thailand and China, Solidiance’s Asia focusprovides clients with a better understanding of intrinsic Asia issues.

To subscribe to further white papers and to learn more about Solidiance please visit: www.solidiance.com

Mickael Feige is a Senior Strategy Consultant based in

Bangkok office with more than five years of consulting

experience. He has led over 50 national and multi-regional

engagements for Fortune 500 clients across Europe, Japan

and south-east Asia. Prior to joining Solidiance, Mickael was

managing investments and partnerships projects in Europe

for large Japanese MNCs, especially in the automotive

industry. With strong experience in combining numerical and

qualitative analytics, Mickael specializes in customizing

advanced market segmentation and size forecasting models

to help clients identify and prioritize market opportunities to

develop growth strategies. Mickael has rich experience

across automotive industry throughout Europe and Asia

Pacific, including in Japan where we worked for one of the

top 3 carmaker. He combines sector and cross-industry best

practice, leveraging this knowledge to help clients develop

successful market strategies. He holds a Bachelor in

marketing (with Honors) from the London Metropolitan

University and a MBA from the Institute of Political Science of

Lyon (France).

Mickael Feige- Senior Consultant

Mark is a Principal based in the Singapore office with more

than eight years of consulting experience. Mark has a strong

focus on quantitative based projects. Previous roles include

being regional manager for Synovate Business Consulting in

Singapore, handling projects for MNCs across Asia, focused

predominantly on the automotive industry. Mark managed

most survey-based projects for MNCs where he advised

international companies on market entry, customer

segmentation prioritization and growth strategies. He also

has ample experience in qualitative research, having

managed various multi-country projects that required a

combination multiple approaches in order to customize

results to meet the clients’ needs. Having worked for five

years in the M&A team of a Korean Conglomerate in Spain,

Mark also has vast experience with mergers and acquisitions

in Europe, Asia and Africa. Mark is fluent in Korean, English

and Spanish. He holds a BS in mechanical engineering, from

the Worcester Polytechnic Institute (United States) and a

MBA from the University of Rochester.

Mark Lee- Principal

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