Car production in Thailand drops by 20.11 per cent in June amid tighter financing, high consumer debt

Thailand's automotive industry faced a significant downturn in June 2024, with car production plummeting by 20.11% compared to the same month last year. This decline follows a 16.19% year-on-year drop in May. The Federation of Thai Industries (FTI) highlighted that stricter financing rules and high consumer debt levels are primary factors behind this slump. For the first half of 2024, car production contracted by 17.39%, totalling 761,240 units.

Impact of Stricter Financing and Consumer Debt

The FTI attributed the decline to more stringent credit approval measures implemented by financial institutions. Surapong Paisitpattanapong, spokesman for the FTI's automotive industry division, explained that these tighter rules, combined with household debt nearing 90% of GDP, led to a higher rejection rate for auto loans. "Stricter measures for credit approval from financial institutions, coupled with household debt that was nearing 90% of GDP, led to a higher rejection rate for auto loans," said Surapong Paisitpattanapong.

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Domestic Sales and Revised Forecasts

Domestic car sales also saw a sharp decline, dropping 26.04% in June from a year earlier, following a 23.38% decline in May. In response to these challenges, the FTI revised its domestic sales target for 2024, lowering it from 750,000 vehicles to 550,000 vehicles. The production target was also adjusted, with the forecast now set at 1.7 million units, down from the previous target of 1.9 million vehicles. In 2023, Thailand produced 1.84 million vehicles, indicating a significant expected shortfall for this year.

Export Market Remains Steady

Despite the downturn in domestic production and sales, Thailand's auto exports are expected to remain stable. The FTI maintained its export target at 1.15 million vehicles for 2024. Thailand serves as Southeast Asia's largest automotive production hub and an export base for major global carmakers, including Toyota and Honda. Pickup trucks are among the key vehicles manufactured in the country, contributing significantly to export numbers.

Underlying Reasons for the Decline

The decline in car production and sales in Thailand can be attributed to several factors. Tighter financing rules have made it more challenging for consumers to secure auto loans. Financial institutions have become more cautious in approving credit, given the rising household debt levels, which have reached concerning proportions. This has led to a higher rejection rate for auto loans, directly impacting car sales.

Moreover, the broader economic environment has not been conducive to growth in the automotive sector. High inflation and interest rates have squeezed consumers' purchasing power, further discouraging new vehicle purchases. The combination of these economic pressures and stringent credit conditions has created a challenging landscape for Thailand's automotive industry.

Looking Ahead

The outlook for Thailand's automotive sector remains uncertain. While the export market provides some stability, the domestic challenges are significant. The FTI's revised forecasts reflect a cautious approach, anticipating continued difficulties in securing auto loans and sustaining domestic demand. However, the resilience of Thailand's position as a key production and export hub in Southeast Asia offers some hope for recovery.

(Inputs from Reuters)