Volkswagen Group applies to set up first factory in Thailand

Article by Christian A., on April 3, 2014

Volkswagen Group has filed an application to set up its first vehicle assembly site in Thailand as part of its plan to cut the lead of global rival Toyota Motor Corp. in Southeast Asia, people privy with the matter told Bloomberg. VW is looking to avail of a government program that offers tax exemptions for carmakers investing at least THB6.5 billion ($200 million) in local manufacturing, the sources said.

To avail of the incentives, a carmaker must have annual production reach at least 100,000 cars in the fourth year after commencing operations, with manufacturing starting by 2019. The program by Thailand's Ministry of Industry includes vehicle assembly, components and engine production. Carmakers had until March 31 to apply.

Juergen Pieper, an analyst at Bankhaus Metzler, told Bloomberg by phone that VW has been one of the carmakers trying to position itself globally. He noted that while current sales volumes in Southeast Asia are much smaller than in China or the United States, it is one of the regions where Japanese carmakers are ahead of VW, which means room for growth.

VW expects industry sales to surge on average 4.5 percent annually through 2018 in the region, which includes Indonesia, Thailand, Malaysia, Philippines and other countries. VW unit Ducati already builds motorcycles in Amata City, Thailand. VW also commenced producing Passat sedans in Malaysia with local carmaker DRB-Hicom Bhd. in 2012.

Chief Financial Officer Hans Dieter Poetsch said in a presentation released on VW’s Web site that the carmaker sees a "strong market opportunity" in Southeast Asia. Sources said VW still has to make a final decision on vehicle production in Thailand since the exact terms and conditions may yet change.

VW declined to comment on any plans it has for the country. Jessada Thongpak, an analyst with IHS Automotive in Bangkok, said that a possible expansion by VW in Southeast Asia is a good strategy since the German carmaker is trying to increase its sales in emerging markets. [source: Reuters]

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