Auto Output Falls 8% in 2008: IEK-ITIS

With a global economy as bad as this one, it should come as no surprise that Taiwan's automotive industry (including both assembled vehicles and auto parts) is shifting into lower gear. In the fourth quarter of 2008, output in the industry plunged by 14.7% from the same period of 2007 to NT$88.28 billion (US$2.59 billion at NT$34:US$1), according to the government-sponsored Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS) under the Industrial Technology Research Institute.

IEK-ITIS estimated that automotive production in Taiwan for all of 2008 would be about NT$286.56 billion (US$8.43 billion), an 8.0% decline from the previous year.

The fourth-quarter production value of assembled vehicles totaled only NT$41.22 billion (US$1.21 billion), an 8.3% increase from a year earlier. The production of over-10-seat coaches enjoyed the highest year-on-year (YoY) growth of the period at 38.3%, while passenger/commercial vehicles suffered the stiffest YoY decline at 48.2%. The output of compact/medium-sized passenger cars climbed by 28.11% YoY, to NT$27.93 billion (US$821.47 million).

The auto-parts sector contributed NT$47.07 billion (US$1.38 billion) to overall automotive production value in the fourth quarter, up 5.0% from a year earlier.

Auto gauges, brake parts, and other auto-parts were the fastest growing categories, with YoY growth at 13.8%, 11.44% and 9.43%, respectively. Bus body parts and truck body parts were the biggest decliners, dropping 13.8% and 1.7%, respectively.

The added value to local automotive industry in the fourth quarter of 2008, according to IEK-ITIS, was estimated at NT$15.39 billion (US$452.6 million), translating into the value-added ratio (VAR) of 17.43%. The 2008 added value was NT$49.03 billion (US$1.44 billion), down 14.71% from a year earlier, translating into VAR of 17.11%.

Imports & Exports

Imports of assembled vehicles in the fourth quarter rose to NT$13.17 billion (US$387.35 million), up 15.18% from the same period of 2007. However, the 2008 value declined YoY by 12.41% to NT$43.68 billion (US$1.28 billion) due to the continuous plunge of domestic new-car sales.

The value of auto-parts imports increased 15.0% YoY in the fourth quarter of 2008 to reach NT$20.29 billion (US$596.76 million). Except for chassis systems and parts, which suffered a 95.64% YoY decrease during the period, all other product categories saw increases. IEK-ITIS attributes the chassis-parts import decline to weak demand for Japanese imports in these segments due to lower sales of Japanese brand cars in Taiwan.

In general, the overall import value of the local automotive industry in 2008 fell to NT$109.29 billion (US$3.21 billion), down 5.8% from the previous year.

Taiwan exported NT$4.16 billion (US$122.4 million) worth of assembled cars in the fourth quarter of 2008, a 74.8% YoY increase, while totaled complete-car exports in 2008 rose by NT$15 billion (US$441.2 million), up 28.6% from previous year. Major markets for Taiwan-exported assembled cars last year include the United States, Australia, Belgium, and Germany.

The island also exported NT$37.76 billion (US$1.11 billion) worth of auto parts in the fourth quarter, up 5.8% from a year earlier, to major markets including the United States, Japan, mainland China, and Germany. Other parts, body electrical parts and vehicle frames were the top export categories. About 80% of Taiwan's auto-part exports were aftermarket (AM) products, the IEK-ITIS said. This segment has suffered less from the global downturn. Taiwan's auto-parts export value totaled NT$142.63 billion (US$4.2 billion) in 2008, up 1.02% from previous year.

The overall export value of the local automotive industry reached NT$157.63 billion (US$4.64 billion) in 2008, a 3.12% YoY increase.

Makers' Moves

One of the key developments in the local automotive industry in 2008 was the establishment of the Luxgen Automobile Co. in May by the Yulon Group, the largest automobile conglomerate in Taiwan. Yulon plans to introduce three own-brand Luxgen models in 2009: a 2,200cc multi-purpose van (MPV), a sport utility vehicle (SUV), and a 1,500cc sub-compact car, as well as in 2010 a pure-electric 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.

The automotive industry in Taiwan has long been dominated by major international automakers (especially Japanese companies) for about 50 years, meaning local makers have been technically dependent on foreign partners, keeping margins low. The Luxgen- branded car models are expected to provide a vehicle R&D and testing platform for the local automotive industry, which is trying to step out the long-term original equipment manufacturing (OEM) tradition.

Major Events

Sales of new cars in Taiwan continued to decline for the third consecutive year in 2008 to 230,000 units, including 187,000 locally produced cars. The unprecedented low capacity utilization has forced local automakers to adopt all possible strategies to cut costs, explore new markets, or even ask for government help.

All of the local automakers have laid off workers, including most of their temporary employees. Many have also asked their foreign technical partners to provide more export opportunities for Taiwan-assembled products. Few have received positive replies, but Ford Lio Ho Motor Co., the local subsidiary of Ford of the U.S., continued to utilize its superior manufacturing capability, high quality, and competitive production cost to win more and more chances to export locally assembled Fords to different overseas markets such as Japan, Australia, and New Zealand.

To stimulate new car sales, the government recently began providing a commodity-tax deduction of NT$30,000 (US$882) for each new car sold with engine displacement under 2,000cc. The subsidy will be available through 2009. However, the subsidy also prompted some would-be 2008 buyers to delay purchases to the first quarter of 2009.

Industry sources say, however, that the subsidy measure's effect will be short-term, while the real deciding factors for a recovered automobile market will rely on turned-around economy and stronger consumer confidence.

Challenges & Opportunities

With few expecting the global economy to rebound anytime soon, the local automotive industry faces many challenges ahead.

One silver lining is that about 80% of Taiwan's auto part exports are aftermarket replacement parts. This sector is less affected by the demand for new cars. The IEK-ITIS warns, however, that aftermarket parts suppliers are not completely immune from the fallout of sinking new-car sales.

Another promising area is electric vehicles (EVs). Unlike the relatively closed market for gas-powered automobiles, the EV market should be more accessible to newcomers, particularly those with strong technology development and innovation capabilities.

The IEK-ITIS points out that the U.S. and Japan are both major markets and industry clusters for EVs, and Europe is gradually catching up. Taiwanese EV players are expected to tap into the developing supply chains in Europe and the potentially even-bigger market in mainland China. With established comparative advantages such as high quality, low cost, and innovation, local EV makers and related parts suppliers are expected to soon gain footholds in this fast-emerging line.

To this end, the Material & Chemical Research Laboratories of the government-backed Industrial Technology Research Institute (ITRI) recently formed a joint venture with TD Hightech Energy 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.