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Cablegate: Ford to Boost Investment in Thailand's "Detroit of The

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DE RUEHBK #5253/01 2780256
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R 050256Z OCT 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0016
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC

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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

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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

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