Honda Motor's recent decision to invest 6.2 billion baht ($186 million) to boost its automobile production in Thailand has provided a much-needed push to the kingdom's eco-car programme.
Although Asian Honda Motor Company - Honda's Bangkok-based Asia-Oceania regional subsidiary - was initially planning a three billion baht expansion of local assembly facilities, it decided to double the investment after the Thai government announced an eco-car policy in June.
"The recent finalisation of the government's eco-car policy has led us to combine the original plan with the project and increase our investment dramatically," Tatsuhiro Oyama, President of Asian Honda Motor, told reporters here recently.
Production at the new factory in Ayutthaya, scheduled to start October 2008, will boost Honda's local auto production capacity from 120,000 units to 240,000.
Thailand announced June 15 that it would award tax privileges to any automobile manufacturer that invests at least five billion baht ($150 million) in the local production of eco-cars that meet the government's standards for the project.
Eligible companies must manufacture no fewer than 100,000 units per annum from the fifth year and meet the government requirements of manufacturing a vehicle that consumes less that five litres of petrol per 100 km and complies with the Euro-4 standards of carbon emissions of less than 120 grams per kilometre.
Interested companies have been invited to submit their applications for the tax privileges by Nov 30, 2007.
Thailand has also agreed to lower the excise tax on eco-car models made in Thailand to 17 percent, compared to the 30 to 50 percent excise tax on standard cars sold on the domestic market.
"This is good enough," said Vallop Tiasiri, president of the Thailand Automotive Institute, a think tank. "If it was higher than 17 percent maybe nobody would take the risk. If lower, maybe too many investors would come."
As it stands, only Honda has jumped on the eco-car programme to date and even they have yet to submit their project to the Board of Investment for approval.
The BoI, the government investment promotion agency, says it will be satisfied if only one or two automobile companies invest in the eco-car programme.
Thailand is currently the world's second largest manufacturer of one-ton pickup trucks (after the USA), but there is limited market growth for the utility vehicle.
"We are hoping the eco-car will be out next global niche," said Sudjit Inthaiwong, BoI deputy secretary general. "We have targeted the year 2010 to produce two million units in Thailand, but the export market for pickups is limited so we're trying to find another global niche."
In 2006 Thailand manufactured 1,192,000 vehicles, about half of which were pickups for the export market.
Of the 682,095 vehicles sold on the Thai market last year, some 60 percent were one-ton pickups, an all-purpose truck suitable for Thailand's agrarian-based economy that supports more than 50 percent of the population.
Automobile industry experts have warned that Thailand may face more difficulties attracting investments in its eco-car programme than it did in pickups, which enjoy a huge domestic market.
India and China have both targeted small-car production, and also have huge domestic markets.
Thailand is banking on its eco-cars meeting international standards, making it suitable for both domestic and foreign markets.
"Nobody has set the same high requirements on their eco-cars as Thailand has," said Vallop. "Our product will be environmentally friendly and safe ... this not cheap."
Except in Thailand, where the eco-car will enjoy special tax privileges that should allow it to undercut other passenger cars in price. "It will be price-competitive because of the special tax treatment, but this is something good for society," said Vallop.