VZCZCXRO7319
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #5253/01 2780256
ZNR UUUUU ZZH
R 050256Z OCT 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0016
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 02 BANGKOK 005253 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/MLS 
STATE PASS USTR 
USDOC FOR 4430/EAP/MAC/OKSA 
 
E.O. 12958:N/A 
TAGS: ECON EINV ETRD TH
 
SUBJECT:  FORD TO BOOST INVESTMENT IN THAILAND'S "DETROIT OF THE 
EAST" 
 
REF:  BANGKOK 4753 
 
¶1.  (SBU) Summary:  After a year and a half of deliberation and 
discussions, Ford Motor Company is set to announce on October 9 a 
USD 843 million investment in passenger car production in Thailand. 
Ford made the decision after the RTG agreed to conditions for the 
investment, including a five-year corporate tax exemption and a 
commitment to establish a training center for automotive workers. 
Despite a sluggish economy and slowing overall investment, the 
automotive industry is a bright spot for both new investment and 
strong export growth.  End Summary. 
 
¶2.  (SBU) Ford is planning to announce on October 9 its decision to 
invest in a new manufacturing line to produce a new "B-car" 
subcompact.  Production will begin in late 2009.  Ford estimates 
that over the lifetime of the project the new investment will amount 
to approximately USD 843 million, nearly doubling Ford's current 
investment in Thailand.  However, next week's announcement will 
mention only the immediate investment of somewhere north of USD 500 
million.  Ford has operated in Thailand in a 50/50 partnership with 
Mazda Motor Corporation since 1995, producing compact trucks and 
SUVs primarily for the Southeast Asia market.  The new plant will 
produce subcompacts, 80 percent slated for export primarily for 
ASEAN markets, Australia, New Zealand and South Africa.  No vehicles 
from the new plant will be exported to North America. 
 
¶3.  (SBU) After 18 months of discussions with the RTG, Ford made its 
decision after the RTG committed this week to meet two conditions 
for the investment.  On October 1, Thailand's Board of Investment 
(BOI) announced it would provide a five-year corporate tax exemption 
for new passenger car manufacturing.  BOI set as conditions for the 
tax break that the manufacturer must invest at least 15 billion baht 
(USD 440 million) and produce at least 100,000 units annually during 
the first five years of operation, conditions that appear tailor 
made to Ford's proposed investment.  On top of this, the BOI offered 
Ford its standard investment promotion package of duty exemptions 
for imports of capital equipment and double deduction off corporate 
tax for utility expenses.  Final BOI approval is expected in the 
next three months. 
 
¶4.  (SBU) In addition, the Ministry of Industry and the Thailand 
Automotive Institute committed on October 2 to sign an MOU with Ford 
and Mazda the following week to jointly establish an automobile 
training center to assist with training of new employees, skills 
upgrades and costs in launching the new plant.  RTG support will 
equal approximately USD 10 million with Ford and Mazda providing 
another 30 million over the course of two years. 
 
Auto industry thrives in otherwise sluggish economy 
--------------------------------------------- ------ 
 
¶5.  (SBU) Ford's planned investment comes amid other announcements 
of new investments by multinational auto and auto parts 
manufacturers.  Despite an overall investment slowdown sparked by 
political uncertainty and a general economic malaise (reftel), Honda 
Motors and India-based Tata Motors also recently announced major new 
investments.  On October 1, BOI approved Honda's 6.7 billion baht 
(USD 200 million) proposal to expand existing facilities and start a 
new eco-car production line to produce up to 120,000 units per year, 
doubling Honda's production capacity in Thailand.  Tata Motors 
received investment privileges in July for a 1.3 billion baht (USD 
38 million) project to produce 35,000 one-ton pickups, primarily for 
the Thai market. 
 
¶6. (SBU) Outside the industrial zone with the largest concentration 
of auto manufacturing on Thailand's Eastern Seaboard is a sign 
boasting "The Detroit of the East."  General Motors production 
facilities there are also set to expand over the next five years 
with new investments that could total $500 million.  GM exports 
nearly 60 percent of its production, mostly to ASEAN.  With the new 
investment, the percentage of exports is set to expand and may 
include supplying the EU market.  Toyota has recently completed 
major new investments that have doubled its capacity for small and 
mid-sized sedans to over 200,000 units annually.  In addition, a 
huge new plant in Chachoengsao just outside Bangkok will make it 
possible for Toyota to transfer all of its pick-up truck 
manufacturing from Japan and supply the world from Thailand.  As 
with Toyota, Ford has chosen to make Thailand its hub for pick-up 
truck manufacturing, supplying 144 countries, other than the United 
States, from its Thailand hub. 
 
¶7.  (SBU) According to the Federation of Thai Industries, vehicle 
exports were up over 20 percent through August year-on-year.  Over 
half of auto production in Thailand is exported, a growing 
 
BANGKOK 00005253  002 OF 002 
 
 
percentage as local sales suffered in the first half of 2007. 
Although Ford admits the strong local currency is affecting its 
exports, substantial import content in its manufacturing has helped 
keep margins from being squeezed too hard. 
 
¶8.  (SBU) Auto industry executives here point to strong and 
consistent government support over the past few decades as the key 
to the establishment of Thailand's booming auto industry. 
Concessionary tariff and tax policies together with good logistics 
facilities encouraged major auto companies to establish major 
manufacturing bases in Thailand and an extensive array of suppliers 
have followed them here.  The auto companies also give high marks to 
the Thai work force, credited for loyalty, a "can do" attitude, and 
attention to quality. 
BOYCE