The rise of fuel-efficient cars in ASEAN countries

Fuel efficiency is an important issue in ASEAN countries, with many member economies reliant on fuel imports to keep vehicles running. Typically, the situation can leave nations at the mercy of increasingly volatile international fuel prices.

In Indonesia, for example, bringing in crude oil and petroleum products weighs heavily on its trade deficit. This problem is only getting worse for many ASEAN countries, as urbanisation creates a burgeoning middle class and a growing demand for passenger vehicles.

A 2012 study published by Elsevier revealed there were just 1.1 million cars in Indonesia in 1987, which had risen to more than 9.8 million by 2008. The figure is projected to reach nearly 39 million within 15 years. The automotive growth trend is similar across a number of other nearby countries, including Thailand – known as the Detroit of the East – and Malaysia.

It is against this backdrop that fuel-efficient cars appear to be gaining momentum, providing consumer-friendly, affordable vehicles for Asia's increasingly discerning drivers.

Frost & Sullivan statistics from earlier this year revealed that ASEAN is currently the world's seventh largest market for fuel-efficient cars, with 3.22 million sold in 2012. Furthermore, the organisation predicted it will become the fifth biggest market by 2020, as projected sales reach 4.38 million. This will see ASEAN countries leapfrog Japan and Russia.

ASEAN's key markets

According to Frost & Sullivan, Japanese manufacturers currently dominate the automotive scene in Thailand and Indonesia, with 90 and 95 per cent market shares respectively.

Toyota enjoys top spot in both nations, with 34 per cent of Thai drivers and 37 per cent of Indonesian drivers owning a vehicle from the brand.

However, the largest part of Malaysia's car sector is controlled by domestic brands, with Perodua the most popular (34 per cent). Japanese brands still have a significant presence in the market, accounting for 28 per cent of the mix.

In regards to fuel-efficient vehicles, all three countries have introduced new government policies that helped environmentally friendly cars surge in sales.

Thailand's first car buyer incentive program: Last year, the Thai government offered consumers tax refunds when buying their first car. The move saw a surge in interest for passenger cars, as purchases shifted from pick-up trucks to sub-compact and compact vehicles. This in turn has led to a rise in fuel-efficient car sales.

Malaysia tax break for hybrid cars: The Malaysian government also implemented a tax incentive scheme for consumers who purchased eco-friendly models. 

Frost & Sullivan noted that the initiative was successful in improving the public's attitude towards energy-efficient vehicles and hybrid cars saw a multi-fold sales increase.

Indonesia's Low Cost Green Car (LCGC) scheme: In September 2013, Indonesia launched its LCGC program, which lowers the price of a fuel-efficient car by reducing the amount of luxury tax paid for certain vehicles. 

Fuel-efficient car sales climbed to 50,000 within four months, with LCGC automobiles accounting for approximately 15 per cent of total purchases by February 2014. Overall, vehicle sales jumped 8.2 per cent to 111,767 in February, according to the Association of Indonesian Automotive Manufacturers.

Looking ahead

While the automotive sector has remained relatively flat across the region this year, the formation of the ASEAN Economic Community (AEC) is expected to be a key driver for future success.

The AEC strives to integrate member countries by 2015, providing a globally powerful single market and production base. This will allow the free flow of investment, capital, skilled labour, goods and services.

Frost & Sullivan noted that even in a worst-case scenario, where all the AEC achieves is the removal of trade barriers, this will have a significant impact on markets. However, there is also likely to be harmonisation of technical standards, streamlining of customs processes and mutual recognition of certification.

The firm's data showed that green cars accounted for 11 per cent of sales in 2013, with the segment exhibiting a compound annual growth rate of 90 per cent across ASEAN.

In a March 2014 market briefing, the organisation said: "The growth momentum is expected to continue for the next few years, as LCGC sales gather steam in Indonesia and Malaysia incentivises their energy-efficient vehicles."

The eco-friendly car market will evolve as the region's countries continue to face a number of challenges, including environmental issues and a dependence on fuel imports. However, ASEAN nations must keep pace with technology advances, with Frost & Sullivan claiming the region could become an "obsolete technology dumping ground for global players".

The performance of the sector over the next decade may hinge on how quickly and effectively processes are streamlined under the AEC. Even so, analysis suggests environmentally friendly vehicles will play an important role in ASEAN's automotive future for many years to come.

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