Boston, MA -- (SBWIRE) -- 08/06/2013 -- Auto sales in Thailand in March 2013 rose 42% year-on-year (y-o-y), to hit 157,527 units, according to Toyota Motor Thailand. Sales for the first three months of 2013 came in at 413,254 units, up 48.8 y-o-y. Although sales continue to power to new highs, it is largely due to the fulfilment of deliveries under the first-car scheme, which ended last year. BMI believes that the spill over of 2012's pre-orders into 2013 is artificially inflating the true demand in the economy, which is expected to be weaker owing to the withdrawal of the first car scheme. We are still calling for a contraction in auto sales of about 3% in 2013, to 1.4mn units.

According to the Federation of Thai Industries (FTI), March vehicle production rose 34% y-o-y to 256,231 units, and production for the first three months of 2013 rose 44% y-o-y, to 721,460 units. While we remain bullish on production, the robust growth in Q113 has prompted us to upgrade our full-year forecast. We now forecast 2013 auto production to grow 8%, from 2% previously, to hit 2.65mn units.

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Passenger car sales for March 2013 were 78,816 units, up 95.5%. Furthermore, sales for the first three months of 2013 were 202,140 units, up 101% y-o-y. However, we forecast a decrease of 4% in 2013, to 640,000 units.

Although domestic auto sales in Thailand have long been dominated by CVs, passenger cars have taken an increasing market share in the last couple of years, due to high oil prices and a demand for greener (ie, smaller, less fuel intensive) vehicles. We forecast the eco-car segment to increase its market share going forward, as more Thai consumers become fuel-conscious.

Although the tax breaks under the eco-car scheme are scheduled to expire in 2015, it is imperative for the government to announce this year whether they will extend the programme, due to the need for automakers to plan capacity a few years in advance. We believe the Thai government will extend the programme or at least continue providing some sort of tax incentives for small cars due to a number of reasons.

Also, while the Japanese yen has depreciated by about 25% against the US dollar in the past few months, Japanese automakers will continue their strategy of diversifying their production away from Japan and developing production bases in other parts of the world.

While auto exports hit a high of 1mn CBUs in 2012, we expect sustained strong growth in the coming years. The recent increase in carmaker and supplier investments, together with strong demand for Thai auto exports in emerging markets, bolsters our bullish view. We expect exports to make up a bigger proportion of domestic auto production, hitting 1.5mn units by 2017.

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