Taiwan's Automotive Production Drop Continues in Q3

With the continuing decline of new-car sales in Taiwan, the production value of the island's automotive industry (including both assembled vehicles and auto parts) in the third quarter of 2008 dropped 22.52% from the same period of last year to NT$60.26 billion (US$1.83 billion at NT$33:US$1), according to statistics compiled by IEK-ITIS, a government-sponsored research project.

IEK-ITIS predicted that production for the whole year would be about NT$271.25 billion (US$8.22 billion), a 12.95% decline from 2007.

The third-quarter production value of assembled vehicles totaled only NT$22.39 billion (US$678.33 million), a 36.28% reduction from a year earlier. The production of passenger/commercial vehicles suffered the stiffest year-on-year (YoY) decline of the period, at 46.44%, bringing the value down to NT$3.57 billion (US$108.12 million); the output of compact/medium-sized passenger cars dropped by 45.78%, to NT$12.26 billion (US$371.6 million).

IEK-ITIS predicted that the downturn in new-car sales would continue through the fourth quarter due to the American financial crisis and the slumping global economy, which have weakened consumer confidence. The organization expects the annual production value of assembled vehicles to reach only NT$108.47 billion (US$3.29 billion) this year, a 23.36% decrease from 2007.

The auto-parts sector contributed NT$37.88 billion (US$1.15 billion) to overall automotive production value in the third quarter, down 9.29% from a year earlier. Compared to the auto-assembly industry, this was a good performance.

The "other auto-parts" category generated a quarterly production value of NT$18.76 billion (US$568.33 million), a YoY decrease of NT$1.39 billion (US$42.18 million). "Bus body parts" contributed only NT$188 million (US$5.7 million), down 64%. Of all the nine categories of auto-parts products, only "steering system parts" saw a minor 1.51% growth in production value, to NT$471 million (US$14.27 million).

IEK-ITIS attributed the increase in steering system parts to the growing export ratio, which climbed to over 50% in the third quarter from less than 40% previously. The ratio of truck body-parts exports dropped substantially in the third quarter, to under 6%, compared to the former 10% to 20%. Overall production dropped more than 30% YoY.

These figures, according to IEK-ITIS, point to tough challenges ahead as both export and domestic markets are expected to shrink. As a result, the organization predicted that the value of Taiwan's auto-parts production for all of 2008 would slip by 4.29%, to NT$162.78 billion (US$4.93 billion).

Declining Value-added

Constantly declining demand for new cars in Taiwan has been driving down the value of domestic automotive production as well as the industry's value-added ratio (VAR).

According to ITEK-ITIS, the value-added production of the local automotive industry was NT$10.42 billion (US$315.72 million) in the third quarter of 2008, down 27.74% from the same period of the previous year. VAR was down to 17.29%, a reduction of 6.4 percentage points. Value-added production for all of 2008 is forecast at NT$47.28 billion (US$1.43 billion), down 17.75% from the previous year, while VAR is predicted to be 17.43%, down 5.53 percentage points.

IEK-ITIS urges local companies to enhance their VAR through innovation and streamlining, or through the development of more cost-effective production processes, so that they will be able to survive today's toxic business climate.

Makers' Moves

A major trend in the local automotive industry during the third quarter was more and more local automakers trying to develop overseas markets. The China Motor Corp., the local assembler of Mitsubishi cars, for example, exported the locally developed Mitsubishi Zinger commercial/recreational van to Vietnam, and the Ford Lio Ho Motor Co. shipped its first batch of locally made Ford Escape sport utility vehicles (SUVs) to Russia.

At the same time, the Sanyang Industry Co. promoted its own-brand SYM mini commercial pickup model, the T880, in Vietnam. This new model is priced at about US$8,000 and powered by a 1,300cc, four-cylinder engine developed by Sanyang.

Following the establishment of the Luxgen Automobile Co. in May, the Yulon Group (Taiwan's largest automobile conglomerate) plans to introduce three own-brand LUXGEN models in 2009: a 2,200cc multi-purpose van (MPV), an SUV, and a 1,500cc sub-compact car developed by the Hua-chuang Automobile Information Technical Center Co. (HAITEC), a Yulon subsidiary.

Yulon has also set up a joint venture, Luxgen (Hangzhou), together with China's Zhejiang Zhongyu Group, which has invested some 4.65 billion renminbi in the construction of a new auto plant in Hangzhou. The new venture will make and market LUXGEN-brand vehicles.

In addition, Yulon plans to integrate its R&D resources in Taiwan to develop pure-electric cars, and to build up a comprehensive electric-car supply chain on the island.

Industry sources say that Yulon's own-brand automobile business will create a technical platform for the validation of locally made auto parts and systems that, hopefully, will be adopted by foreign automakers in the future.

Vehicles powered by alternative fuels are drawing intense attention from carmakers and research units worldwide, thanks to growing environmental concerns and soaring petrol prices. The Material & Chemical Research Laboratories of the government-backed Industrial Technology Research Institute (ITRI) recently formed a joint venture with Welldone Inc. to develop and produce lithium-ion batteries; the new venture has announced a tie-up with Ultra Motor to make Stuttgart, Germany a global pilot city for the deployment of light electric vehicles (LEVs), fleets of which will be made available to the city's commuters. In the future, the partnership hopes to extend its business model into other cities around the world.

Upbeat Outlook

IEK-ITIS points out that the global auto market is facing unprecedented challenges, with American companies such as GM and Ford drowning under a constant flood of red ink and even Toyota announcing a 70% downward adjustment in its annual earning target.

In this dismal business climate, the center urges local automakers to stimulates sales by adopting more flexible sales strategies and, even more importantly, to control their costs carefully so as to be ready to take advantage of the recovery when it finally comes.

The knowledge center also urges government and industry to build up home-grown electric-car R&D capability as quickly as possible, and to develop the production of key parts and systems such as batteries, motors, and battery-management systems (BMSs).

Taiwan's Automotive Production Value (2003-Q1 2008) Unit: NT$1 million
Period		2003	2004	2005	2006	2007	Q3 '08	YoY	2008 (e)	2008/ 2007
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	146,683	154,908	165,686	103,374	92,708	12,263	-45.78%	60,005	-35.28%
	Large (>2.0L) Passenger Cars	15,926	24,861	25,767	19,101	15,961	4,520	52.48%	20,505	28.47%
	Light Trucks (<3.5 ton)	11,195	15,289	17,481	14,822	8,752	1,283	-40.99%	5,895	-32.65%
	Passenger & Commercial Vehicles	16,806	16,592	13,836	12,962	22,054	3,568	-46.44%	18,957	-14.04%
	Heavy-duty Trucks/Buses	4,977	8,048	7,878	9,453	5,621	750	5.22%	3,108	50.93%
	Sub-total	191,794	214,296	225,315	154,177	145,535	22,385	-36.28%	108,470	-23.36%
Auto Parts	Engine Parts	11,871	13,873	15,247	13,122	14,173	3,100	-2.19%	12,293	-1.39%
	Transmission Parts	18,292	20,366	22,179	19,866	20,348	5,712	-20.49%	23,157	-15.54%
	Steering Parts	1,417	1,617	2,260	1,866	2,061	471	1.51%	1,841	-1065%
	Electrical Parts	22,737	27,021	28,365	28,364	31,329	8,472	-2.02%	34,814	1.50%
	Brake Parts	5,020	5,142	5,121	5,903	5,602	1,467	-19.45%	6,186	-11.13%
	Auto Gauges	1,923	2,380	2,265	1,708	1,676	292	-21.31%	1,345	-8.80%
	Truck/Bus Body Parts	1,154	1,460	1,225	1,310	1,071	188	-64.00%	914	-37.07%
	Truck/Others Body Parts	899	1,319	1,468	1,168	1,093	219	-30.07%	1,071	-17.19%
	Others	80,226	94,534	93,875	76,481	76,549	18,755	-6.91%	81,155	-1.81%
	Sub-total	149,069	177,55	184,878	166,182	170,075	37,875	-9.29%	162,777	-4.29%
Total		340,863	391,811	410,193	320,359	311,610	60,260	-22.52%	271,247	-12.95%
Source: IEK-ITIS, November 2008.

　

Taiwan Automotive Industry's Value-added (2004-2008) Unit: NT$1 million
Year	2004	2005	2006	2007	Q3 '08	2008 (f)	Change2008/2007
Production Value	340,863	391,811	410,193	320,359	60,260	271,247	-12.95%
Value-added	95,590	102,355	86,397	60,047	10,419	47,278	-17.75%
VAR	28.04%	26.12%	21.06%	18.74%	17.29	17.43	-5.53%
Source: IEK-ITIS (November 2008)