Thailand, which has already overtaken the US as the world's biggest maker of light pick-up trucks, has set its sights on becoming a hub for fuel-efficient "eco-cars."
Japanese automakers have poured money into Thailand to turn it into a regional production base and the kingdom now produces 900,000 one-tonne pick-ups every year -- about three-fourths of global output.
But growth in that segment is slowing down as consumers fret over high petrol prices and start to look toward more fuel-efficient vehicles.
Globally, growth in light pick-up sales is projected at just two to three percent in the coming years, the Thai Automotive Institute said.
"The fuel efficient eco-car is a growing segment because oil prices are staying high and environmental concerns are growing all over the world," institute director Wallop Tiasiri said.
Sensing an opportunity to expand the country's auto industry, the government has approved a slate of tax incentives designed to lure carmakers to build new factories where they can produce the eco-cars.
As many as 3.2 million small cars are sold every year around the world, Wallop said.
"What we are trying to do is to convince those carmakers to set up a production base for small cars in Thailand by creating a sizable local demand for them," Wallop said.
Under the incentive scheme, excise taxes on eco-cars would be slashed from 30 percent to 17 percent.
Automakers have also been offered tax incentives to produce cars that meet the next generation of European emission standards, which will require that by 2012, cars release no more than 12g of carbon dioxide per kilometer.
If companies take up the government's offer, Thailand expects the first eco-cars to roll off the production lines in October 2009.
The scheme could help stimulate Thailand's auto market, which has seen domestic sales plunge by nearly 16 percent in the first four months of this year.
Although exports remained strong, weak domestic sales pulled down Thailand's overall production by 3.3 percent through April of this year.
Leading automakers are still mulling the government's proposal.
Adisak Rohitasune, senior vice president of Japan's Honda Motor in Thailand, said the company was extremely interested in producing small cars there for sale both in the kingdom and elsewhere.
Honda late last year submitted a proposal to Thailand's Board of Investment (BOI) to produce eco-cars in the kingdom, but the company is reworking it to reflect the government's new scheme.
"We are revising our production plan for the model to comply with requirements recently endorsed by the BOI," Adisak said.
"The model has an export potential as it suits the global trend for fuel-efficient cars amid high oil prices and global warming concerns," he said.
Carlos Ghosn, head of Japan's Nissan Motor and France's Renault, said during a visit to Bangkok last week that Thailand's proposal was "one of the considered options" for his company, but added that it appeared to favor the power players in the Thai market.
Suraphong Paisitpattanaphong, spokesman for the Automotive Industry trade group, said small cars would complement Thailand's existing production of pick-ups.
About 65 percent of the vehicles made in Thailand are one-tonne pick-ups, which accounted for 78 percent of the country's auto exports last year, he said.
With approximately 540,000 units shipped abroad last year, Thailand is Asia's third-largest vehicle exporter after Japan and South Korea.
"With economic and environmental concerns pushing up demand for vehicles that consume less fuel, the eco-car will help Thailand to reach its target of producing 1.8 million units a year by 2010," Suraphong said.
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