More New Car Sales Drive up Taiwan's Auto Production Value in 2010

Taiwan's automotive production value rose to NT$334.6 billion (US$11.15 billion) in 2010, of which assembled vehicles contributed NT$161 billion (US$5.4 billion), up 35.8% year-on-year (YoY), and auto parts contributed NT$173.6 billion (US$5.79 billion), up 22.3%, according to the statistics compiled by the IEK-ITIS, a government-sponsored research project.

The IEK-ITIS says that the official subsidy program, paying US$1,000 each to buyers of under-2,000cc cars, as well as automakers’ ad campaigns and new model launches to revive bottoming new car sales worked well. About 320,000 new cars were sold in Taiwan last year, a peak since 2006 but still far lagging the 514,000 vehicles that were licensed in 2005.

Improving Sales
Sales of new cars in Taiwan have been recovering quarterly in 2010, due mainly to the gradually warming domestic economy, while the rising Japanese yen also forced local automakers to raise prices for 2011, which could enhance car dealers’ profitability. Also the relatively easy availability of consumer loans at attractive rates has helped make car buying easier.

Rising exports of Taiwan-made cars helped raise local automakers' output in 2010. In the fourth quarter, some 14,836 locally-assembled automobiles, including 12,881 passenger cars and 1,955 under-3.5-ton commercial vehicles, were exported, according to statistics compiled by the Taiwan Transportation Vehicle Manufacturers' Association (TTVMA)

In the last quarter of 2010, the production value of assembled vehicles was NT$45.6 billion (US$1.52 billion), up 15.7% quarter-on-quarter (QoQ), with the sales of under-2,000cc compact cars accounting for 63% of the overall value and 17% from the sales of passenger/commercial vehicles.

The auto-parts production value reached NT$46.7 billion (US$1.6 billion) in the fourth quarter of 2010, up 7% QoQ.

Industry Dynamics
The Conference on Cross-strait Cooperation and Exchange in the Automobile (including Battery Energy Storage) Industry was held for the second time in December 2010 in Hangzhou, Zhejiang Province, China to promote closer interactions among automotive operators in Taiwan and China.

Attended by major carmakers and associations, the conference discussed the status quo and development of the future potential of China's automotive industry, as well as the characteristics, advantages of Taiwan’s automotive industry; potential partnerships and development of the automotive industry in Taiwan and China; the potential and feasibility of building new-energy vehicles for Taiwan and China; enterprisers’ sharing of experiences related to developing global markets; and the automotive industry in Hangzhou and potential partnerships.

First held in Taiwan in 2009, the conference was attended by representatives of all major automakers and parts suppliers in Taiwan and China to promote exchanges and possible partnerships. The second conference achieved more concrete results, with many operators meeting each other to discuss building partnerships. The meeting concluded by stressing that new-energy vehicles and automotive electronics should be the focus of future cross-strait partnerships, and players on either side of the Taiwan Strait should continue to raise mutual investments.

The IEK-ITIS says that new-energy or electric vehicle (EV) is the focal point of the automotive industry in Taiwan and China. Driven by aggressive promotions and policy support, China has the potential to become the largest market for battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) in the near future, for the nation is already the world's largest automobile market with some 17.2 million vehicles having been sold in 2010.

With China's EV technology development still at the demonstration and technical-certification stage, meaning the EV supply chain has yet to be formed, Taiwanese companies still stand a chance to tap the Chinese automakers' supply chains. In addition, increasingly more EV industry alliances have been or will be set up with automakers being key players and upstream parts suppliers and research institutes jointly participating in the coalitions.

Join Alliances ASAP
Given the scenario, the IEK-ITIS suggests Taiwan suppliers do their utmost to join the EV alliances in China as early as possible so as not to be left out the game.

Another trend in China is that, says the IEK-ITIS, major Chinese and foreign automakers are expanding their market shares by steadily launching new products, which makes survival by independent automakers, ones without technical partnerships with international carmakers, more challenging. Generally consumers tend to prefer products from established or larger carmakers for more reliable after-sales support.

The automobile market in major, first-tier cities in China is gradually becoming saturated, says the IEK-ITIS, so any major growths in the future will be mostly in second- and third-tier cities. However models from Chinese-and-foreign joint ventures are relatively more expensive, hence not as competitive in the second- or third-tier cities despite their default roles as the next growth hotspots.

Increasingly more independent Chinese automakers attempt to be more competitive by adopting older models from foreign partners for local production, which can be brought to market faster at lower cost and sold for lower prices, without compromising their market positioning and brand image. Such trend presents opportunities for Taiwanese automakers.

Independent carmakers in China have relied on selling low-priced cars in China, but some Chinese-and-foreign auto ventures are encroaching on such segment by launching products priced under 60,000 renminbi (RMB), hence making survival even more difficult for the independent automakers.

Taiwan's Yulon Group, which is aggressively trying to sell its own line of LUXGENs in China and has set up a venture with the Dongfeng Group of China, may also suffer due to the above-mentioned trend. So Yulon, as well as a group of at least 30 auto-parts suppliers who have decided to set up plants in China, should map out clearer strategies to take on the potentially debilitating competition.

Prospects
The New Year of 2011 is expected to be better for automakers in Taiwan, with some 53,300 new cars having been sold in January, a monthly record in four years.

The IEK-ITIS data show that most local automakers have raised production volumes since the fourth quarter of 2010, which may ease delivery shortage but cause decreased production volume in the first quarter of 2011.

The IEK-ITIS forecasts that in the first quarter of 2011, the assembled-vehicle production value will total about NT$43.5 billion (US$1.45 billion), down 4.6% from the fourth quarter of 2010, with the auto-parts production value to be about NT$44.4 billion (US$1.48 billion), down 4.9% QoQ. The overall automotive production value in the first quarter of 2011 is projected to be NT$87.88 billion (US$2.92 billion), up 11.8% from the same period a year earlier.

As of November 2010, drivers owned some 2.7 million cars older than 10 years in Taiwan, or 47% of the total passenger cars registered on the island. Looking optimistically towards the local economy in 2011, the IEK-ITIS predicts that the year's automotive production value will increase 13.5% to reach NT$379.8 billion (US$12.66 billion), including that of assembled-vehicles at NT$187.85 billion (US$6.26 billion, up 16.7% YoY) and that of auto-parts at NT$191.96 billion (US$6.4 billion), up 10.6% YoY).

Production Values of Taiwan's Automotive Sectors (2009-2010) Unit: NT$1 million
Period		Q4'09	Q1'10	Q2'10	Q3'10	Q4'10	QoQ	YoY	2010(e)
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	30,096	23,721	22,095	23,467	28,731	18.78%	-4.54%	98,733
	Large (>2.0L) Passenger Cars	3,144	4,283	5,763	3,445	4,696	28.08%	49.35%	18,408
	Light Trucks (<3.5 ton)	2,380	2,123	2,790	2,370	2,943	16.16%	23.66%	10,389
	Passenger & Commercial Vehicles	5,438	6,187	5,258	7,373	7,760	2.70%	42.69%	26,760
	Heavy-duty Trucks/Buses	1,568	1,551	2,222	1,465	1,464	-0.03%	-6.63%	6,702
	Sub-total	42,627	3,7864	38,128	38,120	45,593	15.70%	6.96%	160,993
Auto Parts	Engine Parts	3,051	2,858	3,188	3,249	3,388	5.66%	11.05%	12,640
	Transmission Parts	4,752	4,624	4,713	5,044	5,434	9.00%	14.35%	19,757
	Steering Parts	586	582	758	709	745	5.89%	270.5%	2,788
	Electrical Parts	8,917	8,691	9,594	9,105	9,306	3.71%	4.36%	36,564
	Brake Parts	1,519	1,452	1,642	1,600	1,608	-0.46%	5.85%	6,318
	Auto Gauges	433	44	457	516	536	0.37%	23.81%	1,969
	Truck/Bus Body Parts	159	329	410	536	452	-22.36%	183.16%	1,772
	Truck/Others Body Parts	308	210	427	294	364	24.2%	17.90%	1,293
	Other	24,130	21,543	21,319	22,125	24,864	9.23%	3.04%	90,489
	Sub-total	43,856	40,731	42,508	43,178	46,695	6.97%	6.47%	173,589
Total		86,483	78,594	80,636	81,298	92,288	11.11%	6.71%	334,582
Source: IEK-ITIS, February 2011