Search

 

Cablegate: Burma: Producing New Cars with Used Parts

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

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC