The implementation of ASEAN Economic Community (AEC) should be expedited to address the challenges by introducing policies such as ASEAN Single Window (ASW) and Mutual Recognition Arrangement (MRA) that would integrate ASEAN as a single market.
Frost & Sullivan senior director for mobility Dushyant Sinha said the implementation of AEC will impact the region's auto sector at three levels. Firstly, the development of ASW, MRA and self-certification are likely to enhance trade, make the movement of vehicles between different markets cheaper and faster. Standardisation of technical specifications, the establishment of common standards for testing and homologation would help reduce vehicle complexity and cost of introducing new vehicles and overall economic development of the region would give a further fillip to demand, improving scale economies and attracting more investment in the sector.
"The development of AEC has been more of a process instead of a single one-time event and this has been going on for quite some time. It is still work in progress (WIP) with quite a few objectives yet to be achieved. Over years, the automotive industry in ASEAN has evolved in tandem with the AEC," Sinha told The ASEAN Post via an email reply.
Key challenges
One of the key challenges being faced by auto players is the manifestation of non-tariff barriers (NTBs) across the region. These include import quotas and anti-dumping actions as well as technical, administrative, health and safety regulations that end up having protectionist effects. Some of the most important, among these are non-harmonised technical standards, reduced mutual recognition of certification and cumbersome customs procedures that do not sync with each other.
Different product standards, varying by market and non-adherence to any international standards also have an adverse impact on export competitiveness for locally manufactured automotive products. Furthermore, they are detrimental to environmental protection and road safety.
Another key challenge is the availability, quality and mobility of labour. Businesses are seeking flexibility in sourcing cheaper labour from Cambodia, Lao, Myanmar and Vietnam (CLMV) markets as costs rise in markets like Thailand and Indonesia. Current migration trends are skewed towards medium and low skilled labour vis-a-vis high skilled labour and this is likely to increase further in the years to come.
There is a strong need to develop an efficient logistics industry to aid increasingly complex supply chain. This includes the need to optimise connectively through various modes and access to ports, sophisticated logistics services and skilled professionals across the supply chain.
Digital transformation
All major global automakers are present in ASEAN, most of them have invested in some form of local assembly or manufacturing operations. ASEAN presents a unique set of market characteristics and requirements and the global players need to adapt their product market strategies to meet these. There are shifts from conventional powertrain technologies to 'greener' ones like electric vehicles (EVs) and hybrids.
Digital transformation is impacting the entire automotive value chain, facilitated by growing penetration of the internet across the region. It is imperative for the entire automotive ecosystem to adjust to these trends and automakers will need to play their part as initiators and facilitators. Technology transfer, local research and development (R&D) and skill, competency development of workers, are also crucial areas where auto makers need to focus.
The outlook of ASEAN automotive market
ASEAN automotive sales will reach 3.26 million units in 2017, up 3% against 2016 sales. The key drivers would be the rebound in economic prospects mainly revival of the commodity sector and export demand across the region, the steady growth in domestic consumption and large-scale investments made by the government, especially in markets like Indonesia and Thailand.
Across ASEAN, automotive policies are being increasingly oriented towards eco-friendly green cars. Regional demand for such vehicles has been largely shaped by government policies based on the dependence on fuel imports, fear of technology obsolescence, environmental issues and global market integration. These policies include several incentives designed to bring down the prices at the consumer's end. This has contributed to increasing demand for green cars likely to reach 1.24 million units by 2020.
Sinha said across the automotive value chain, large suppliers and marginal participants are expected to make substantial inroads into the original equipment market. Local suppliers are likely to focus more on the aftermarket. Market consolidation and new strategic partnerships are expected.
"Dealers are expected to face downwards pressure on margins and volumes from increased competition. Smaller original equipment manufacturers (OEMs) and new entrants are expected to gain the most from the implementation of AEC, as the level playing field will make it easier for them to expand their presence and the challenge the large incumbents," Sinha added.
Taxation system
While the taxation system in ASEAN protects domestic investments and the local automotive sector, most markets have initiated changes to incorporate global best practices, make it fairer and more uniform. There are also trends that suggest a gradual shift towards carbon taxation to promote more environmentally friendly cars. This is in line with developments happening in key automotive markets across the globe.