Assembled-vehicle Production Value Estimated to Plunge in 2009: IEK-ITIS

Taiwan's automotive sectors did not escape the global downturn in the first quarter of this year: the production values of vehicle assembly and auto parts manufacture plunged 22.98% year-on-year (YoY) to NT$55.02 billion (US$1.62 billion at US$1: NT$34), but rose 8.17% quarter-on-quarter (QoQ), according to the government-sponsored Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS) under the Industrial Technology Research Institute.

Compared to the same period of 2008, the production value of vehicle assembly declined 38.78%, and auto-parts 22.98%. The assembled-vehicle production value has been shrinking in recent years due to the maturing domestic automobile market; while auto-parts makers on the island have been aggressively tapping overseas markets, hence maintaining relative-stable production values.

Having been on a steady decline for some time amid challenging conditions, new-car sales in Taiwan rebounded modestly starting the late first-quarter and are still climbing incrementally in the second-quarter due to an official incentive: sub-2,000 cc new cars sold are eligible for a commodity-tax reduction of NT$30,000 or US$882.

The IEK-ITIS estimates that the automotive production value in Taiwan for 2009 would be about NT$215.67 billion (US$6.34 billion), a 13.43% decline from the previous year, including NT$70.13 billion (US$2.06 billion) from vehicle assembly (down 27.63% YoY) and NT$145.54 billion (US$4.28 billion) from auto parts (down 4.39% YoY).

The first-quarter sales of new cars in Taiwan continued to drop due to the recession, forcing the government to offer incentives in late January, with the resulting effects trickling into the market by February and March.

Down Sizably YoY

The production value of vehicle assembly in the first quarter totaled only NT$19.16 billion (US$56.5 million), down 38.78% YoY albeit a 9.95% increase from the fourth quarter of 2008. The IEK-ITIS points out that the local vehicle-assembly sector depends mainly on the domestic market, which is expected to be flat in all of 2009 because the overall economy still has not fully shaken the impact of the global recession, forecasting that the overall assembled-vehicle production value this year will plunge 27.63% YoY to about NT$70.13 billion (US$2.06 billion).

The production value of light-truck assembly saw the stiffest YoY decrease of 44.24% in the first quarter, followed by that of compact passenger cars at 41.48% YoY decline.

The auto-parts making sector contributed NT$35.86 billion (US$1.05 billion) to the overall automotive production value in the first quarter, up 10.66% from a year earlier but down 7.24% QoQ. The IEK-ITIS estimates that the sector will contribute NT$145.54 billion (US$4.28 billion) to the overall automotive production value in Taiwan this year, down 4.39% from 2008.

The global aftermarket has been critical for local auto-parts makers. The upside to the financial storms, while hampering consumers from buying new cars, is more business opportunities for aftermarket replacement parts makers in Taiwan, for drivers will be keeping older cars longer, and many OE parts makers have shut down due to idled lines at major carmakers, forcing drivers to buy more AM parts.

Except the engine and parts category, which saw a 3.12% YoY production value growth in the first quarter, all the others showed declines during the period, albeit modestly.

The production values of bus body parts, truck and other body parts, and auto gauges were the top-three biggest YoY decliners in the first quarter at 44.64%, 29.8%, and 19.62%, respectively.

Tapping ECFA Opportunities

To further optimize the economic benefits of Cross-strait business dealings, the Taiwan government is proposing the signing of an economic cooperation framework agreement with China. Once signed, the ECFA will see Taiwan lift its ban on car imports from China, the prospects of which have already driven some local companies to move to tap potential opportunities.

Prince Motors Co., for example, recently set up a subsidiary, bought an idled car plant from a defunct counterpart, and plans to sell locally-assembled mini cars built with imported, completely-knock-down (CKD) parts from Chery Auto of China. The plan is expected to sink already challenged carmakers in Taiwan deeper, and trigger another wave of price-cutting competition.

While Taiwanese consumers are still not sold on the quality and safety of China-made cars, but if Chery cars successfully take up turf in the local dealerships, the production value of local car assembly is expected to be compromised, also forcing other local automakers to compete with budget-priced products.

Industry sources say that Chery also intends to have the Taiwanese partner export Taiwan-assembled commercial vehicles or passenger cars by utilizing the better-quality image enjoyed by the island.

Another local carmaker hatching plans to work with a China partner is the Yulon Group, the largest car-making conglomerate in Taiwan, which will be launching the mini Panda, a product by Geely Automobile of China.

To be marketed under the Yulon-created TOBE line, the 1,300cc Panda will go on sale in in Taiwan in September, with Yulon estimating that the new mini car would retail under NT$350,000 (US$10,294), achieved by Geely allowing concessions on the prices of key parts.

Promoting Hybrids

Besides offering tax-reduction on buying new cars, the Taiwan government is also subsidizing hybrid-fuel cars by levying half the commodity tax, aiming to promote purchasing green vehicles in Taiwan.

The IEK-ITIS says that, before pure-electric car technology becomes fully mature, hybrid vehicles are generally deemed as the next-best option.

Some Taiwanese auto-parts makers, especially those with production plants in China, are expected to benefit from the booming automobile market in China, which exceeded the American counterpart early this year in the volume of cars sold.

Production Values in Taiwan's Automotive Sectors (2003-2009) Unit: NT$1 million
Period		Q4'08	Q1'09	QoQ	YoY	Q2'09(e)	2007	2008	2009(e)	YoY
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	10,666	10,504	-1.53%	-41.48%	9,155	92,708	54,273	34,849	-35.79%
	Large (>2.0L) Passenger Cars	2,339	4,526	93.52%	-32.36%	4,345	15,961	18,830	16,249	-13.71%
	Light Trucks (<3.5 ton)	1,536	909	-40.83%	-44.24%	1,022	8,752	6,224	3,587	-42.36%
	Passenger & Commercial Vehicles	2,561	2,669	4.22%	-36.36%	3,619	22,054	14,902	13,607	-8.69%
	Heavy-duty Trucks/Buses	323	551	70.70%	-33.76%	567	2,059	2,685	1,841	-31.41%
	Sub-total	17,426	19,159	9.95%	-38.78%	18,706	141,536	96,914	70,133	-27.63%
Auto Parts	Engine Parts	2,850	3,038	6.60%	3.12%	2,753	12,466	12,133	11,467	-5.49%
	Transmission Parts	4,765	4,960	4.10%	-13.31%	5,418	27,419	21,790	20,783	-4.62%
	Steering Parts	441	425	-3.57%	-1.11%	486	2,061	1,773	1,848	4.24%
	Electrical Parts	7,066	8,193	15.95%	-3.63%	8,725	34,299	32,897	33,472	3.71%
	Brake Parts	1,355	1,380	1.88%	-12.27%	1,480	6,740	6,0897	5,554	-8.78%
	Auto Gauges	229	255	10.98%	-27.58%	263	1,475	1,1667	1,007	-13.68%
	Truck/Bus Body Parts	440	139	-68.49%	-18.83%	144	1,453	1,0357	610	-41.10%
	Truck/Others Body Parts	248	178	-28.22%	-19.54%	234	1,294	990	886	-10.57%
	Other	16,046	17,292	7.77%	-14.50%	18,279	82,648	74,969	69,911	-6.75%
	Sub-total	33,439	35,859	7.24%	-10.66%	37,784	169,853	152,842	145,537	-4.39%
Total		50,865	55,019	8.17%	-22.98%	56,490	311,389	249,135	215,670	-13.43%
Source: IEK-ITIS, May 2009