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KUCHING: Automakers which rely on completely knocked down (CKD) imports from Thailand may face possible margin compression next year, amid the new ruling government’s populist move to raise the country’s minimum wage.

The new Thai government would increase the country’s minimum wage to 300 baht per day, effective April 1, 2012.

OSK Research Sdn Bhd’s (OSK Research) analyst, Ahmad Maghfur Usman, told The Borneo Post in an e-mail correspondence, “The increase averages 30 per cent to 40 per cent for most states and up to 90 per cent in some poorer areas. At the same time, corporate tax income will be cut from 30 per cent to 23 per cent next year to lessen the burden of employers.”

According to the Thai Ministry of Labour and Social Welfare, the minimum wage would affect as many as 5.5 million workers in Thailand. Currently, there are about 1,000 small and medium-sized auto part factories out of the total 2,000 in Thailand, with a workforce of more than 500,000 labourers.

As a result of the increase in staff wages, a spokesman of the Thai Autoparts Manufacturers Association, Thavorn Chalassathien estimated that prices of automotive parts and components would be adjusted accordingly by 10 per cent to 15 per cent and consequently put further cost pressures on Thai automakers who export their semi and CKD kits to assemblers in Malaysia.

“We do not see the corporate tax cut in Thailand helping to offset the expected price increase as most auto players will need to recoup the losses arising from the floods as well as an appreciation Japanese yen, which makes Japanese imports more expensive,” Ahmad Maghfur said.

The protracted flooding in Thailand’s affected provinces, which resulted in 20 to 30 auto part plants being submerged in water, led to an extended shutdown until October 28 by most automakers (Nissan, Isuzu, Toyota and Mitsubishi) due to an unexpected supply shortage.

On a positive note, auto parts production from the flood-stricken areas accounted for 10 per cent of total production for the Thai automotive industry but there was currently no shortage of critical components such as micro-controllers, unlike that experienced after Japan’s devastating tsunami.

“Our checks reveal that components that are short are floor parts, cross members, pillars, brackets, clips, brackets, clips, brakes, engine parts and fuel tanks, which can be sourced from other suppliers,” Ahmad Maghfur explained.

While the production halt in Thailand was expected to create a near-term supply shortage across the nationwide supply chain, the analyst expected production to normalise within the next two months as recent production losses would be made up for by increasing working hours and running the plants at full capacity.

“Plant utilisation rate were at close to full capacity because of lots of order backlogs caused by the Japanese earthquake,” he commented when asked if the capacity the plants were running at levels prior to the floods.

In the local scene, Ahmad Maghfur did not anticipate foreign automakers to immediately relocate their investments from Thailand but he noted that a progressive geographic diversification of operations and multi-sourcing would be the most sensible strategy.

Many automakers were already eyeing Indonesia as their next production hub but given that the country is also prone to natural disasters, there might be a rethink in the near future.

To capitalise on this opportunity, the OSK Research analyst hoped the Malaysian government would further liberalise the country’s automotive sector when it would announce the National Automotive Policy sometime next year.

With regards to the possibility that government would implement liberalisation guidelines to capitalise on the relative instability of Thailand and Indonesia, he commented, “I still believe protection measures will still be given to national carmakers Proton and Perodua.

“They can probably liberalise it fully but prohibit from selling to the domestic market,” he added.

Ahmad Maghfur remained bearish on the automotive sector, which was likely to be affected by a change in overall consumer sentiment.

“Consumers are starting to become more cautious on big ticket item purchases and if this persists, new model launches will be unlikely to substantially spur growth,” he concluded

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