Automotive Production Value Dips in Q1 '08 in Taiwan

Impacted by the plunging sales of new cars in Taiwan, the production value of the nation's automotive industry during the first quarter of 2008, including the assembled-vehicle and auto-parts sectors, totaled about NT$67.3 billion (US$2.2 billion at US$1: NT$30.5), a decrease of 2.83% from the same period in the previous year, according to the statistics released by the IEK-ITIS, the government-sponsored researcher Industry & Technology Intelligence Services (ITIS) as part of the Industrial Economics & Knowledge Center (IEK) under the Industrial Technology Research Institute.

The IEK-ITIS attributes the above-mentioned downturn to various factors, including relatively weak consumer confidence in the wake of highflying gasoline prices, continually rising raw material prices, reported slowdown in the American economy, uncertainties in Taiwan politics before the presidential election in late March 2008, etc., all of which compromised new car sales in Taiwan-setting a 20-year record low in 2007 and the first quarter of this year.

The overall automotive production value in Taiwan is mostly generated by sales of small/medium passenger cars-accounting for 58.5% of the total value in 2007, compared to 18.6% for large passenger cars. The lagging consumer confidence is predicted to continue in 2008, IEK-ITIS points out, with the sales of passenger cars expected to keep dipping.

Declining Demand

Of the total automotive production value in the first quarter of 2008, some NT$30.5 billion (US$1 billion) was generated by assembled vehicles, including compact/medium passenger cars, large passenger cars, light trucks, passenger/commercial vehicles, heavy-duty trucks, down 8.35% from the same period of 2007; while auto-parts contributed NT$36.8 billion (US$1.2 billion), up 2.50% from a year earlier and outperforming that of assembled-vehicles.

The declining demand for new cars in Taiwan and steadily climbing material prices have been driving up automakers' average production cost to dilute profitability, so both the added value and value-added ratio (VAR) in the local automotive industry dropped in the first quarter. IEK-ITIS points out that the VAR in the industry in Taiwan slipped 16.52% from a year earlier to 12.26% in the first quarter, with the added-value achieved by the industry totaling NT$8.2 billion (US$268.5 million), down 14.18%.

IEK-ITIS advises local companies to try to improve the VAR through innovation-creating new products-and streamlining or making more cost-effective production processes to make the most of the unfavorable business climate.

Major Events

A significant event in the local automotive industry during the first quarter is a joint venture between the local Yulon Group and mainland China-based Zhejiang Zhongyu Group, which invested some 4.65 billion renminbi (RMB or Chinese yuan) in the construction of a new automobile production line in Hangzhou, Zhejiang Province of China. The new partnership is scheduled to produce LUXGEN-branded vehicles to be developed by Hua-chuang Automobile Information Technical Center Co. Ltd. (HAITEC), an automotive-electronics subsidiary under Yulon.

Taiwan's China Motor Corp. (CMC), an affiliate of the Yulon Group, signed a technical cooperation agreement with the Premier Group in India to authorize the Indian partner to locally assemble the Verica mini commercial van. Premier's plant will also turn out CMC's Vericas to be exported to Bangladesh, Pakistan etc. and perhaps other neighboring nations

In early January, the Industrial Development Bureau (IDB) of the Ministry of Economic Affairs moved to develop more robust growth in the local automotive industry-inviting major car assemblers and auto parts manufacturers as well as official automotive-related authorities and research organizations to jointly work out appropriate strategies.

The meeting attended by industry, government, and academic representatives eventually reached a consensus that called for teamwork to help boost the export of locally-made auto parts and assembled-in-Taiwan vehicles; effectively stimulate willingness to buy new cars on the island; and upgrade the automotive R&D skills in the country.

Also promising is that, under the effort and subsidies provided by the Bureau of Foreign Trade (BOFT) under the MOEA, CMC has been exporting its locally-made Delica commercial van to Mexico through the sales channels set up by Chrysler in the Spanish-speaking nation. Such success in exporting a locally-made vehicle is expected to help play a role in promoting the global marketability of Taiwan-made vehicles.

Upbeat Outlook

IEK-ITIS points out that the main obstacle in the way of rising willingness to buy new cars in Taiwan is spiraling gas prices. However, such hindrance has a potential bright side: high gas prices compromise new car sales but, on the contrary, may stimulate the willingness to buy or replace current cars with more fuel-efficient choices. Another bright spot has been found in a consumer confidence index (CCI) survey released by The Research Center for Taiwan Economic Development, National Central University, showing most respondents expressed optimism toward the domestic economy in March. The IEK-ITIS predicts, based on such survey, that new-car sales in 2008 are likely to stay at similar levels as 2007.

The sagging economy in the United States, partly confirmed by the dismissal of thousands of banking employees, reported in a global English paper, in the wake of the sub-prime mortgage crisis, is not expected to help drive up new car sales this year, IEK-ITIS says, but sizable growths are expected in the aftermarket (AM) auto parts segment-helping to fuel further export sales for suppliers in Taiwan who serve such demand.

Taiwan's Automotive Production Value (2003-Q1, 2008) Unit: NT$1 million
Period		2003	2004	2005	2006	2007	Q1 '08	YoY
Type of assembled vehicle	Medium & Compact (<2.0L) Passenger Car	146,683	154,908	165,686	103,374	92,708	17,777	-24.41%
	Large (>2.0L) Passenger Car	15,926	24,861	25,767	19,101	15,961	5,639	40.19%
	Light Truck (<3.5 ton)	11,195	15,289	17,481	14,822	8,752	1,577	-2.4%
	Passenger & Commercial Vehicle	16,806	16,592	13,836	12,962	22,054	3,993	35.04%
	Heavy-duty Truck/Bus	4,977	8,048	7,878	9,453	5,621	1,504	30.29%
	Sub-total	195,587	219,698	230,648	159,712	145,096	30,490	-8.35%
Auto Parts	Engine Parts	11,871	13,873	15,247	13,122	14,173	3,357	-2.95%
	Transmission Parts	18,292	20,366	22,179	19,866	20,348	447	-16.39%
	Steering Parts	1,417	1,617	2,260	1,866	2,061	7,790	9.61%
	Electrical Parts	22,737	27,021	28,365	28,364	31,329	4,536	-6.01%
	Brake Parts	5,020	5,142	5,121	5,903	5,602	1,235	-6.82%
	Auto Gauge	1,923	2,380	2,265	1,708	1,676	400	-2.76%
	Truck/Bus Body Parts	1,154	1,460	1,225	1,310	1,071	182	-11.91%
	Truck/Others Body Parts	899	1,319	1,468	1,168	1,093	210	-12.83%
	Others	80,226	94,534	93,875	76,481	76,549	18,681	4.76%
	Sub-total	143,539	167,712	172,005	149,788	153,902	36,839	2.50%
Total		339,126	387,410	402,653	309,500	298,998	67,329	-2.71%
Source: IEK-ITIS (May 2008)

　

Taiwan Automotive Industry Added-value ((2003-Q1 '08) Unit: NT$1 million
Year	2003	2004	2005	2006	2007(e)	1Q'08	YoY
Production Value	339,126	387,410	402,653	309,500	298,993	67,329	-2.71%
Added Value	95,103	101,205	84,808	58,011	55,162	8,254	-14.18%
VAR	28.04%	26.12%	21.06%	18.72%	18.45%	12.26%	-16.52%
Source: IEK-ITIS (May 2008)