Auto Industry Output in Taiwan Rebounds in Q2: IEK-IT IS

Taiwan's automotive industry is showing signs of shifting back into higher gear after a punishing year. Production value in the sector, including both assembled vehicles and auto parts, surged by 37.86 % quarter-on-quarter (QoQ) in the second quarter, trimming the year-on-year (YoY) decline to 13.08%, according to the government-backed Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS), a unit of the Industrial Technology Research Institute.

IEK-ITIS estimates that continued recovery will pare the automotive production drop in Taiwan this year to 6.73% or about NT$232.37 billion (US$7.15 billion).

The Q2 figures were helped by traditionally strong sales before the Chinese Ghost Month overlapping with most of August. Automakers and distributors also rolled out incentives to new-car buyers in June and July to boost the numbers. Automaker also often ramp up output in the second quarter to prepare an anticipated demand spike after the Ghost Month.

Statistics compiled by Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) show that a total of 88,274 new cars were produced by Taiwan automakers in the first half of the year, down 22.5% from 113,909 units in the same period of 2008. June volume, however, rose 15.9% YoY, indicating that the domestic automobile market is beginning to heat up, IEK-ITIS said. The center still expects volume for the year to fall short of 2008 due to plunging demand in the first five months of the year.

The second-quarter production value of assembled vehicles totaled only NT$26.95 billion (US$829.35 million), a 62.6% QoQ gain but still down 10.3% from a year earlier. The production of light trucks suffered the stiffest YoY decline at 40.7%, followed by large passenger cars at 31.8%.

IEK-ITIS forecasted that the production value of assembled vehicles in 2009 would reach NT$91.46 billion (US$2.81 billion), down 5.62% YoY, with light trucks and large passenger cars suffering the stiffest declines of 27.87% and 20.27%, respectively.

Auto Parts

The auto-parts sector contributed NT$35.36 billion (US$1.09 billion) to overall automotive production value in the second quarter, up 23.54% QoQ but down 15.27% YoY. The 2009 parts production value is estimated to reach NT$140.91 billion (US$4.34 billion), down 7.43% from the previous year.

Auto gauges, bus bodies, truck and body systems are more vulnerable to the slackening domestic demand since exports in these categories have been falling in recent years. The production value of engine parts, transmission systems and parts, steering systems and parts, and brake systems and parts also declined on weaker demand from the U.S. and Europe. However, government-subsidized "cash for clunkers" programs in the U.S. and the U.K. and other countries have helped to buoy new-car sales worldwide, providing relief for auto parts makers in Taiwan.

Major Events

The second quarter also saw the establishment of the Telematics Promotion Office (TPO) under the Institute for Information Industry (III). The new agency will promote automotive telematics development on the island, including assistance with the planning of next-generation telematics technologies, building links with major international players, and exploring business opportunities in China and other emerging markets.

The office already has organized two telematics-related exchange conferences in April and May for companies in Taiwan and China.

Industry sources point out that the booming automobile market in China is creating increasing demand for vehicle safety, comfort and entertainment functions. This is expected to increase business opportunities for telematics and safety-related automotive electronics products, an area in which Taiwanese companies have been active for years. They add that the establishment of the TPO is expected to create stronger linkages among players in the local telematics and automotive-electronics sector, as well as enhance interactions between Taiwanese and Chinese government authorities and private makers.

Another major automotive event in the second quarter was China's announcement of a subsidy program for new mini passenger cars and low-speed commercial vehicles in rural areas from March 1 and December 31. Each family is limited to purchase one vehicle and the maximum subsidy is 10% of the vehicle purchase price up to RMB5,000. The government will also offer RMB2,000 for each discarded three-wheel car and RMB3,000 for low-speed commercial vehicle traded in under the program.

The subsidy program is expected to spur demand in the automotive industries on both sides of the Taiwan Strait. The program is likely to turbo-charge new car sales in China, which in May unseated the U.S. as the world's largest automobile market, though the stimulus effect could be short-term due to the limited subsidy amount of RMB5 billion.

About 1.5 million mini passenger cars and commercial vehicles are expected to qualify for the subsidy, encouraging Chery, Changan Motor and other auto makers in China to ramp up production of compatible models.

Taiwan auto-parts makers with operations in China are also expected to ride the Chinese cash-for-clunkers program to higher sales.

Two such companies are Tong Yang Industrial Co., Ltd., the world's largest maker of aftermarket (AM) plastic body-parts, and its affiliated Taiwan Kai Yih Industrial Co., Ltd., a major sheet-metal body parts supplier. The Tong Yang Group has set up 17 subsidiaries or joint ventures in China to produce original equipment (OE) parts, which are supplied to all of the top-10 automakers in China.

Taiwan's China Motor Corp. (CMC), the local assembler of Mitsubishi and Chrysler car models and long the second-largest auto seller on the island, is expected to be another beneficiary of the clunkers program. The automaker has a major stake in South East (Fujian) Motor Co., Ltd. (SEM), a major automaker in China with several models compatible with the subsidy program.

TYC Brothers Industrial Co., Ltd., one of the largest auto-lamp makers in Taiwan, is also expected to profit from its reinvested auto-parts venture in China that supplies products to Harbin Harfei Automobile Co., which also has subsidy-compatible models.

Prospects

ITEK-ITIS forecasts that the third-quarter production value of assembled vehicles and auto parts in Taiwan will reach NT$21.66 billion (US$66.37 million) and NT$37.05 billion (US$1.14 billion), respectively, totaling the overall automotive output to NT$58.7 billion (US$1.81 billion) during the period, up 5.27% YoY.

Taiwan's Automotive Production Value (2005-2009)
Period		2005	2006	2007	2008	Q2'09	QoQ	YoY	Q3'09 (e)	2009 (e)	YoY
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	165,686	103,374	92,708	54,273	16,426	45.12%	6.34%	12,270	55,188	1.69%
	Large (>2.0L) Passenger Cars	25,767	19,101	15,961	18,830	4,369	150.26%	-31.8%	4,059	15,012	-20.3%
	Light Trucks (<3.5 ton)	17,481	14,822	8,752	6,224	1,062	25.56%	-40.7%	1,113	4,489	-27.9%
	Passenger & Commercial Vehicles	13,836	12,962	22,054	14,902	4,263	79.61%	-22.1%	3,701	14,508	-2.6%
	Heavy-duty Trucks/Buses	7,878	9,453	5,621	2,685	832	185.99%	-0.6%	512	2,265	-15.6%
	Sub-total	225,315	154,177	145,535	96,914	26,953	62.61%	-10.3%	21,657	91,464	-5.6%
Auto Parts	Engine Parts	15,247	13,122	14,173	12,133	2,890	24.33%	-9.57%	2,911	11,139	-8.2%
	Transmission Parts	22,179	19,866	20,348	21,790	3,704	17.12%	-36.9%	5,200	17,971	-17.5%
	Steering Parts	2,260	1,866	2,061	1,772	511	20.74%	12.9%	499	1,989	12.2%
	Electrical Parts	28,365	28,364	31,329	32,275	8,280	25.47%	-4.65%	8,099	31,292	-3.1%
	Brake Parts	5,121	5,903	5,602	6,089	1,367	27.83%	-17.4%	1,449	5,608	-7.9%
	Auto Gauges	2,265	1,708	1,676	1,166	289	20.46%	-11.7%	222	1,020	-12.5%
	Truck/Bus Body Parts	1,225	1,310	1,071	1,035	107	340.6%	-58.7%	148	451	-56.4%
	Truck/Others Body Parts	1,468	1,168	1,093	990	152	-8.25%	-54.2%	156	701	-29.1%
	Other	93,875	76,481	76,549	74,968	18,049	23.58%	-13.8%	18,358	70,730	-5.7%
	Sub-total	184,878	166,182	170,075	152,221	35,362	23.54%	-15.3%	37,046	140,905	-7.4%
Total		410,193	320,359	311,389	249,135	62,316	37.86%	-13.1%	58,703	232,370	-6.7%
Source: ITEK-IT IS, August 2009.