Myanmar auto industry shifts from used to new in shake-up

Dec 28, 2016

Suzuki rides the new-car wave with local plants

Myanmar, long known as a used-car paradise, is undergoing a drastic change in its automobile industry as the government tries to cultivate production by restricting secondhand imports.

Brand-new only

Sakura Trade Center, the Southeast Asian nation's biggest auto importer, opened a Suzuki showroom Saturday in central Yangon. The dealership is Sakura's first for new vehicles, as the company has focused on used cars since its 1993 founding.

In peak times, Sakura imported 10,000 used autos yearly from Japan. But President Htay Aung said the company no longer can expect growth in used vehicles. Sakura will open three more new-car showrooms in the first half of 2017, and the president said new autos will account for some 90% of overall sales in 2018.

Another major player, Farmer Auto, debuted its first new-car showroom in the fall.

This shift is driven by import restrictions on used vehicles announced in November. Starting in January, imports of right-hand-drive vehicles will be banned in principle, and only those built between 2011 and 2014 will qualify for an exemption given in exchange for certificates showing the scrapping of older cars.

An estimated 120,000 used vehicles will be imported from Japan in 2016. A sharp drop appears inevitable next year, hammering many small and midsize import companies.

The Myanmar Automobile Manufacturer & Distributor Association is protesting the ban, as the industry group says vehicle prices will soar to a level that ordinary people cannot afford. Used-car prices at a Yangon dealership jumped 10-20% over the past month.

A 32-year-old worker with a nongovernmental organization had been considering a purchase, but now intends to wait in light of price volatility stemming from the policy change.

More than 90% of the roughly 540,000 passenger vehicles registered in Myanmar as of the end of fiscal 2015 are said to be preowned autos built in Japan.

Second attempt

But right-hand-drive vehicles are dangerous in Myanmar -- where traffic travels on the right side of the road -- especially when vehicles on opposite sides of the road pass one another. The government has controlled imports of older right-hand-drive vehicles since 2013, and also announced restrictions in December 2015 similar to the latest ones. Yet the 2015 measure was withdrawn due to strong resistance from the used-car import industry.

What differs this time is that the new government led by State Counselor Aung San Suu Kyi positions job creation as a top priority and aims to draw manufacturers to Myanmar.

Industrial policy took precedence over used-auto importers under the new administration, said a source from a Japanese trading company that had petitioned for import restrictions.

'Make in Myanmar'

Automakers producing vehicles in Myanmar are gaining momentum. Suzuki Motor can build 2,700 units a year and sells around 1,000 units in the country, including the Ertiga minivan and the Carry small truck. Construction of a new plant began this month, and the company aims to raise production to 10,000 units in 2018. Suzuki will roll out its Ciaz sedan in early 2017.

Takayuki Sugiyama, who heads Suzuki's Myanmar operations, spoke confidently of benefits from local production, such as an exemption from registration fees that can top 30% and close connections with dealers. Ford Motor and other automakers apparently are considering production in Myanmar, too.

But it remains unclear whether restricting used-car imports will boost the new-auto segment, which has annual sales of just 6,000 to 7,000. New vehicles are 50-200% pricier than preowned varieties. Myanmar lacks a concentration of parts suppliers, making production costs more inefficient as materials must be imported.

Demand is certain to shift gradually to new cars, but challenges abound.

Turning to new markets

Myanmar was the biggest importer of Japanese used cars in 2014 and 2015, and the country ranked second for the January-October period this year, accounting for about 10% of all shipments from Japan. The ban on right-hand-drive vehicles in Myanmar will hurt Japanese exporters of used vehicles.

Imports of Japanese autos surged in Myanmar following a deregulation of used-car imports in 2012. The Japan External Trade Organization says preowned vehicles make up about 90% of Japanese auto shipments to Myanmar.

Market saturation already put the brakes on imports in 2015, with the new ban set to depress imports further. Japanese exporters are urgently cultivating new markets such as Sri Lanka. The United Arab Emirates has been the top shipment destination in 2016, amid rising shipments from the UAE to Africa via Dubai.

 

Source:  Nikkei Asian Review