Southeast Asia's partial trade liberalization should have been a dream come true for global car makers: import tariffs came crashing down and the use of local parts paved the way for bigger cost savings.
Yet most are taking only small steps as they search for ways to benefit from the new tariff scheme under AFTA, or the ASEAN free trade area.
The tariffs are being reduced slowly and in a piecemeal way. Non-tariff barriers remain stubbornly high and fragmented product lineups have made it difficult to achieve the hoped-for economies of scale.
"If the ASEAN policies moved more quickly, the auto makers will be right there, step for step," said Michael Dunne, president of consultancy Automotive Resources Asia. "They're moving at the pace of a locomotive leaving the station."
The auto industry has been waiting for over a decade for the barriers to evaporate since ASEAN first toyed with the idea of a common economic region, much like the EU.
Now, as car sales stagnate in the developed world, integration of the expanding ASEAN auto market has become critical to enable global auto makers to keep making money -- or, in some cases, simply to survive.
Vehicle demand in Japan this year is seen stagnant around 6 million units and US sales hover around 16 million to 17 million. Demand in Southeast Asia, meanwhile, is expected to rise 30 percent to around 1.8 million by 2008 from 1.377 million this year, Automotive Resources Asia estimates.
But progress has been slow. The Common Effective Preferential Tariff (CEPT) scheme under AFTA, initially slated to kick off in 2000, only includes Thailand, Indonesia and the Philippines so far, leaving Malaysia out until 2005 while it readies its national car makers for foreign competition.
Import tariffs for built-up cars are now between zero and 5 percent in the three participating nations -- down from as much as 80 percent -- but remain as high as 300 percent in Malaysia.
And non-tariff barriers are just as formidable.
"For starters, safety and emissions regulations are all over the place, while customs clearance and cross-border distribution still take a lot of time," said Yoshihisa Tabata, director for automotive policy planning at Japan's trade ministry.
Perhaps the biggest headache for the main players -- including Japan's Toyota Motor, Mitsubishi Motors, Isuzu Motors, Honda Motor, and US giant General Motors -- is the fragmented product make-up across the region.
Owing to preferential taxes, pick-up trucks are the vehicle of choice in Thailand, making it the second-biggest pick-up market in the world after the US. Thailand is the region's biggest producer, with output seen this year at 500,000, ahead of Malaysia's 420,000.
Meanwhile, Malaysia and the Philippines prefer passenger cars and Indonesians drive the so-called Asian utility vehicle, which can seat up to eight people.
For auto makers, that means concentrating production of one model in one country and exporting to the others -- a natural course of action with the lowered tariffs -- is not as cost-efficient as it could be with a common market.
"As long as [the preferential tax structure] is in place, I believe you'll still have the same type of market segmentation," said John Bonnell, a partner at Automotive Resources Asia.
That's not to say the AFTA scheme isn't helping.