VZCZCXRO2279
RR RUEHCHI RUEHDT RUEHHM RUEHNH RUEHTRO
DE RUEHGO #0189/01 0720441
ZNR UUUUU ZZH
R 120441Z MAR 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 7288
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1779
RUEHBY/AMEMBASSY CANBERRA 0989
RUEHKA/AMEMBASSY DHAKA 4791
RUEHNE/AMEMBASSY NEW DELHI 4541
RUEHUL/AMEMBASSY SEOUL 8080
RUEHKO/AMEMBASSY TOKYO 5641
RUEHCN/AMCONSUL CHENGDU 1385
RUEHCHI/AMCONSUL CHIANG MAI 1454
RUEHCI/AMCONSUL KOLKATA 0243
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3566
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1404
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 RANGOON 000189 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: ECON EFIN EINV PREL BM
SUBJECT: BURMA: PRODUCING NEW CARS WITH USED PARTS 
 
RANGOON 00000189  001.2 OF 003 
 
 
¶1.  (SBU)  Summary.  Using import substitution policies, the Burmese 
Government has encouraged the development of a domestic car 
manufacturing sector since 2001.  Currently, more than 400 small and 
medium-sized companies in Burma produce "new" unbranded jeeps and 
light trucks with used parts imported from Japan, China, Taiwan, and 
Malaysia.  In 2007, companies produced more than 150,000 jeeps and 
light trucks, which sell for between 9 million and 15 million kyats 
($9,000-15,000) respectively.  Instead of using assembly lines to 
produce cars quickly and efficiently, Burmese car factories employ 
manual laborers to make car and truck frames by hand and modify used 
parts to fit the vehicles, producing an average of 100 cars and 
trucks per month.  Although the GOB banned the import of new 
vehicles in 2001, it continues to allow a foreign company, 
Japanese-owned Suzuki, which signed a joint venture agreement with 
the Ministry of Industry 2 in 1997, to produce cars locally.  End 
Summary. 
 
"New" Cars out of Old Parts 
--------------------------- 
 
¶2.  (SBU) The Burmese Government believes that a vibrant domestic 
car manufacturing industry is a sign of economic growth.  Since 
2000, the regime has encouraged local producers to manufacture cars, 
jeeps, and light trucks, even though many companies lack the 
technical experience, equipment, and parts necessary to do so.  The 
government then banned the import of new cars in 2001 to enable the 
nascent industry to develop.  However, instead of producing new 
cars, Burmese car manufacturers build "Franken-cars": cars built on 
locally-handmade chassis with a mixture of imported spare parts 
modified to fit the vehicle.  It is normal to see a Burmese car or 
truck with a crudely painted "Toyota" or "Nissan" logo, comprised of 
parts from China, Japan, Korea, or Malaysia.  In the restricted and 
overpriced Burmese market, these cars and trucks are considered new 
and sell for between 9 million to 15 million kyat ($9,000-15,000), 
depending on the model and the location of purchase. 
 
¶3.  (SBU)  During the first five years of production, the Burmese 
Government allowed each local company to produce only 130 vehicles a 
year.  Manufacturers could build and sell any type of vehicle, 
including cars, trucks, buses, and ambulances.  As the demand for 
cars and light trucks increased, the government permitted companies 
to increase production of jeeps, buses, and light trucks.  In 2007, 
more than 400 small and medium-sized car factories existed in Burma, 
producing approximately 150,000 vehicles a year.  Approximately 75 
percent of these cars were manufactured in Rangoon.  According to 
unofficial estimates, manufacturers sold more than 120,000 cars and 
light trucks directly to the Burmese customers last year, up from 
approximately 80,000 in 2006.  The military purchased almost 40 
percent of these vehicles, manufacturers told us. 
 
¶4.  (SBU)  Locally produced cars and trucks have a reputation for 
poor quality and remain outnumbered on the streets of Rangoon by 
clunky used cars from Thailand and Japan.  U Aung Too told us that 
while his cars should last up to eight years, the owner would have 
to frequently repair or replace imported parts, which often are 
scarce on the market or are of poor quality.  Local manufacturers do 
not offer guarantees on the quality of their vehicles nor offer 
service warranties. 
 
¶5.  (SBU)  Although it encourages the growth of the local car 
manufacturing industry, the government also highly regulates it. 
According to U Aung Too, General Manager of Mai Tong Shan Star car 
factory in Taunggyi, the Burmese Government closely monitors the 
industry because it does not want local companies to illegally 
import foreign cars and pass them off as locally-made after slight 
modifications.  In the past few years, the Ministry has confiscated 
cars that too closely resemble foreign cars, punished the 
manufacturer by either fining it or closing down its shop, and 
 
RANGOON 00000189  002.2 OF 003 
 
 
forced local manufacturers to follow a pre-approved model for cars 
and trucks.  According to car manufacturers, only factories located 
in industrial zones can produce and sell cars and trucks.  Officials 
from the Ministries of Industry 1 and 2 regularly inspect car 
factories before issuing car licenses; if a company is not properly 
registered, the Ministry will not issue a license. 
 
Little FDI in Burma's Car Industry 
---------------------------------- 
 
¶6.  (SBU)  The Burmese Government practices import substitution to 
encourage the domestic production of cars, although it permits one 
foreign company to continue producing foreign cars in Burma.  In 
1997, the Ministry of Industry 2 inked a ten-year contract with 
Japanese-owned Suzuki Motors and First Myanmar Investment Company 
(FMI), establishing a joint venture worth $6.7 million to produce 
Suzuki light trucks, Wagon-Rs, and motorcycles.  Per the agreement, 
Suzuki maintained a 60 percent share of the company, the Ministry of 
Industry 2 had 30 percent, and private company FMI (owned by Serge 
Pun and Associates) owned 10 percent.  Between 1997 and 2007, Suzuki 
Myanmar produced and sold more than 1,500 trucks and 1,000 Wagon-Rs. 
 The GOB and Suzuki Myanmar in January signed a contract extension 
for an additional ten years. 
 
¶7.  (SBU)  According to FMI Managing Director Martin Pun, the joint 
venture did not start out well, with production far below market 
demand.  Producing imported cars up to Japanese specifications was 
expensive and establishing factories with assembly lines took time, 
so the company did not turn a profit until 2003, he lamented.  The 
2001 import ban changed Burma's car market, increasing public demand 
for new cars - the only ones in town were Suzuki Wagon-Rs. 
Consequently, the price of the Suzuki Wagon-R more than doubled 
since 1997, from an initial asking price of initially set at 25 
million kyat ($25,000) to between 47 million and 53 million kyat 
($47,000-$53,000), depending on the model.  Under the new ten-year 
deal, Suzuki will expand production dramatically, from producing 168 
cars and trucks and 780 motorbikes a year to 1,200 cars and trucks 
and 4,800 motorbikes by 2018.  Pun explained that Suzuki Myanmar 
plans to produce 500 Wagon-Rs, 400 light trucks, and 1,000 
motorbikes in 2008 for sale at their five dealerships in Rangoon. 
 
Car Demand in 2008 
------------------ 
 
¶8.  (SBU)  Although Pun believes that demand for Suzuki Wagon-Rs and 
light trucks will increase in the next few years, local car 
producers predict a downturn in the demand for local cars.  U Aung 
Too told us that car manufacturers in Taunggyi have sold close to 
forty percent fewer cars since the fuel price hikes last August. 
One car manufacturer in Rangoon and four in Taunggyi closed in 2007, 
while others in Rangoon, Mandalay, and Taunggyi reduced operations 
becase they were not making a profit. 
 
¶9.  (SBU)  U ung Too explained that the market for branded vehiles 
(Suzukis and the few foreign cars that are iported each year) and 
locally-made cars and trucks were distinct.  Those who can afford 
new cars or high-priced imported vehicles (only available to those 
well-connected who have car import licenses) will continue to buy 
them, but poorer Burmese can no longer afford to own their own 
vehicles because of higher fuel and maintenance costs.  In past 
years, many Burmese would purchase cars, not to drive them, but 
because they would receive gas rations that they could sell on the 
black market for a profit.  However, because of the high price of 
gas and recent government limitations on gas rations, from eight 
gallons a week to four gallons per week outside of Rangoon and 
Mandalay, owning a car is no longer profitable, he explained.  Car 
producers in Taunggyi and Rangoon expect to produce approximately 
100,000 vehicles in 2008, a 33 percent reduction from 2007 levels. 
 
RANGOON 00000189  003.2 OF 003 
 
 
 
Comment 
------- 
 
¶10.  (SBU) Less than 5 percent of Burma's 55 million people have 
cars, although local production of cars and trucks has made it 
easier for some of Burma's middle class to purchase vehicles. 
Nevertheless, owning a car is something that most Burmese only dream 
about.  The regime touts car manufacturing as a sign of economic 
growth, but the real reason it encourages the expansion of the 
industry is so that it can purchase vehicles for the military at a 
fraction of the cost of imported cars and trucks.  As the Burmese 
economy continues to deteriorate, local car manufacturers will sell 
fewer and fewer cars.  Burma's auto industry will not become viable 
without major political and economic reforms that eliminate the 
military's mismanagement. 
 
VILLAROSA