Boston, MA -- (ReleaseWire) -- 03/31/2014 -- According to latest figures from Toyota Motor Thailand, auto sales in Thailand tumbled 45.6% year-onyear (y-o-y) in January 2014, to 68,508 units. The outbreak of political unrest in recent months has dashed hopes of a market recovery in 2014. To put the negative impact of the protests into perspective, the last time monthly sales were lower in absolute numbers was back in December 2011, during a year when the country was wrecked by devastating floods.
While we had forecasted a mild recovery for 2014 back in November 2013, as we believed the market had largely digested the after-effects of the first car scheme (see 'Mild Recovery In 2014 As Market Bottoms Out', November 11 2013), we are now forced to reverse our stance due to the recent dislocation in the country's political landscape. The sharp deterioration in the country's business and macro-economic environment will have negative knock on effects on the auto sector, and we forecast a 12.2% contraction in vehicle sales in 2014, to 1.17mn units.
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We see both the passenger car and commercial vehicle (CV) segment taking at hit due to Thailand's political quagmire as households and businesses keep their spending plans on hold while awaiting further clarity on the political situation (see 'Growth Downgraded Amid Deteriorating Business Sentiment', February 19). We forecast passenger car sales to contract 12% in 2014, to 555,000 units and CV sales to decline 12.5%, to 610,000 units, in the same period.
Used Car Segment Facing Greater Pressure
The sales glut in the Thai auto market resulting from the first car scheme has seen the prices of used cars tumble some 30% since the beginning of 2013. Additionally, the used car segment faces strong competition from the new car market due to the latter's lower leasing rates and more attractive promotions. We expect pressure on used cars to remain going into 2014, as dealers selling new cars will continue to employ aggressive marketing strategies in order to boost flagging industry sales.
Forecasts Assume Peaceful Resolution To Conflict
It is noteworthy that our auto sales growth forecast for 2014 is not as bearish as the y-o-y decline experienced by the industry in January, due to our belief that the country's political impasse will be resolved in the near term. Our Country Risk team's core view is a peaceful and expedited resolution to the current crisis through a transition towards a new government. This will then bring pent-up demand into the market in the latter half of 2014.
However, we caution that a prolonged political stalemate or an escalation in violence remain key downside risks to our forecast.
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