1. Conference on Regional Integration in Asia and the Emerging Trade Regime Supply Chain Linkages across borders in Asia : Automobile Industry ITC Geneva, ICRIER, CII New Delhi 28 March 2007 Dilip Chenoy Director General SIAM

2. Presentation Outline Asia : Vehicle & Parts Production Overview Export of CBU’s ASEAN Exports and Imports Steps in producing a vehicle Global sourcing Automotive Supply in Asia Supply Linkages in Asia Status and impact of FTAs & RTAs in Asia

3. Asia : Vehicle & Parts Production Overview CountryProduction Million nos. Local firms Foreign firms Parts/Materials Nature of capitalisation Nos. China 5.70817 Local & Foreign 2000 + India 1.64712 Local & Foreign 530+ Indonesia 0.50-7 Local & Foreign 171 Japan 10.7984 Local 468 Korea 3.6933 Foreign & local 913 Malaysia 0.5614 Local & Foreign 117 Philippines 0.65-5 Foreign 256 Thailand 1.12-10 Local & Foreign 809 Vietnam 0.35-14+ Foreign 46

4. 12 million units production growth in the period of 2001-2012 13 million units in 2001 25 million units in 2012 Source: DRI-WEFA (in ‘000 units) Auto Industry Growth : 2001 -2012

5. Production, Trade and Domestic Sales CountryProductionExportImportDomestic Sales Japan10,8005,0532685,852 China5,7081951625,762 Korea3,6992,586321,142 ASEAN Thailand Malaysia Indonesia Philippines 2,365 1,125 563 622 55 531 464 47 10 1,885 703 551 534 97 India1,6421961,440 Taiwan446515 Total24,66016,528 World64,539Asia’s Share 38.2% Year 2005 Unit: 1,000 Source JAPIA

6. Importance of Asian Auto Market Low growth for auto in developed markets Importance of Asia increasing would be a 10 million market with three hubs China, India and ASEAN. Number of component suppliers would increase. Sourcing from Asia to increase as auto makers increase sourcing from low cost countries Move towards harmonisation of vehicle / parts standards and technical regulations.

7. Export of CBUs by Japanese Auto Manufacturers 2002 Source) Export from Japan: JAMA Others: Global Insight (DRI Automotive)

8. Export of CBUs by N. American & European Auto Manufacturers 2002 Source) Global Insight (DRI Automotive)

9. CBU Export among Developed Countries 2002 Unit: thousand (s) Source) The Society of Motor Manufacturers and Traders Ltd./ Ward’s Communication/ JAMA Note) 1/ France, Germany, Italy, Spain, Sweden 2/ EU 15 Japan & S. Korea W. Europe United States Australia 191 1/ 1,132 2/ 2,447 32 99 1/ 316 908 1/ 164 2/ 12

10. *Ch 86-89*Ch 86-89 Source:AFTA, ASEAN Trade DataSource:AFTA, ASEAN Trade Data *Ch 86-89 Source:AFTA, ASEAN Trade Data

11. *Ch 86-89*Ch 86-89 Source:AFTA, ASEAN Trade DataSource:AFTA, ASEAN Trade Data *Ch 86-89 Source:AFTA, ASEAN Trade Data

12. Press Shop Stamping Body Shop Sub/Body Assembly Component plants Diverse material & processes Foundry Casting of Engine block Forge Forging of High-strength parts Transmission Plant Machining Assembly & Test Engine Plant Machining Assembly & Test Paint shop Clean Paint body Assembly plant Trim Final Test & Lines assembly fix Raw Material Suppliers Steel Aluminium Polymers Engine Dress Finished vehicle Into distribution And retail network STEPS IN PRODUCING AN AUTOMOBILE

13. Manufacturing Body-in-white, Painting final assembly Key Suppliers/groups (systems, modules) Components suppliers /groups (components,subsystems) Pre- assembly Materials, semi-finished, standard parts An Example of a sourcing structure of an OEM

14. Large Scale Effects High Technology Little product variability Light compact products Scale Driven Moderate product variability Moderate weight/bulk Modules / Systems assemblies Moderate product variability Heavy / Bulky Modules / Systems Assemblies Exact in-line sequencing Heavy / Bulky ICs Alternators/starter motors Heat Exchangers Hub Units HVAC systems Fuel Tanks Seats Alarms Dashboards Painted Bumpers Global 20-30 km 300 – 400 Km 2,000 Km GLOBAL SOURCING :THE THEORY

15. Source : Time for a model change, Maxton & Wormald Systems Structure of an automobile

16. GLOBAL SOURCING : PRACTICE Most systems or parts cannot simply be exchanged between different car types or even between different models occupying the same segment. They are typically dimensioned precisely to the requirements of the individual model and have to fulfill very precise interface requirements. Family of suppliers uniquely affiliated to a given vehicle manufacturer Some suppliers large & powerful : supply to many

17. Automotive Supply in Asia Auto parts production increasing in Asia Production of labour intensive parts being transferred to low cost countries Industry in each country at different stage of development –China & Malaysia : preferential treatment –Thailand & India : Enhancing competitiveness –Technical assistance to local companies poor OEMs looking to increase local content Specialist suppliers for steel, plastics, aluminium

18. Supply Linkages in Asia (1) Nissan –China & Thailand to supply parts globally –Thailand Engine plant would supply to Malaysia and Indonesia –Thailand to promote procurement from ASEAN and optimise investments relating to vendors Honda –Moved Asia Pacific HQ to Thailand –Local component production started in Indonesia, Philippines, Malaysia & Thailand –Consolidation of sourcing launched in India Hyundai –10+ Korean suppliers in Thailand supply parts to India

19. Supply Linkages in Asia (2) Toyota –Thailand emerging as centre for engines, India & Philippines for transmission –For the IMV in ASEAN 90% parts from Thailand rest from ASEAN. –CKD exports from Thailand Mitsubishi –Tires, sintered parts, wheels and gaskets from Malaysia, forged parts from Indonesia, transmissions from Philippines India –OEMs start sourcing from China & ASEAN Steel –Preferred supply base Japan & Korea

20. FTAs Status in Asia JapanChinaIndia ASEAN ThaiMalaySingPhilKorea Indonesia JapanXSNEPAA EPAEEPAANN ChinaXEHPE IndiaSX CECAA EHPE CECAA ASEAN NEHPE CECAA XAFTA N ThaiNEHPE AFTAX MalayNAFTA X SingEPAECECAAFTA X FTAAAFTA PhilNAFTA X KoreaNSNFTAAX Indonesia NAFTA X S = Studying, N = Negotiating EPA = Economic Partnership Agreement A= Agreed E = In effect EHP = Early Harvest Programme CECA = Comprehensive Economic Cooperation Agreement ( as of 2005)

21. Impact of RTAs & FTAs on Supply Chain Duties lowered and or eliminated within AFTA External tariff rates lowered but much higher than AFTA Application specific models and variants being developed for and manufactured in ASEAN. Japanese, US and European automakers have moved base to Thailand : Export to ASEAN and other regions Exports of vehicles, parts, components to ASEAN and other markets to grow in volume and type Parts and components for after market sourced principally from the ASEAN. Most global TIER 1 part makers to set up manufacturing facilities in ASEAN linked to local firms. Currently China, Korea and India have negligible exports to ASEAN. OEMs would continue to determine sourcing.

22. Thank you dchenoy@siam.in

23. FTAs in Asia Pacific Region (as of Jan. 2004)

24. MFN IMPORT DUTIES IN ASEAN INDONESIAMALAYSIAPHILIPPINESTHAILAND PASSENGER CARS CKD25% - 50%25% - 35%10%33% CBU45% - 80%80% - 200%20% - 30%80% COMMERCIAL VEHICLES CKD25%0% - 40%3%10% - 33% CBU5% - 45%30% - 200%15% - 30%30% - 60% MOTORCYCLES CKD5% - 25%5% - 30%3%0% CBU35% - 60%60% - 120%30%60%