Home Insider Who Will Drive Forward Myanmar’s Auto Market?

Who Will Drive Forward Myanmar’s Auto Market?

There was once a time in Yangon when the city’s arteries were not bursting with vehicles desperately slugging it out over a few inches of tarmac. As the three year anniversary of Thein Sein’s role as President approaches in April, of the raft of economic and political reforms implemented by him and his government, it is the utter surge in the amount of cars on Yangon’s streets that is most obvious to the most casual observer within the city.

While other major cities within the country have not been unaffected by the increase in car imports, those city’s residents have long been able to commute via the much nimbler option of motorbikes, something denied to Yangonians – in 2003, the government banned the use of motorbikes within the city’s limits and, as yet, there are no signs that that ban will be lifted – forcing many to cram into busy, often decrepit buses and trains or rely on uneconomical taxis.

During the country’s military rule, the import tax on automobiles was so high, and import rules so complicated, that vehicles were the domain of only the country’s most elite – in fact, Myanmar’s automobile sector draws many parallels with the telecoms sector, which has been seen as a key indicator that the government is genuine in its plan for reforms. According to some reports, in previous times, second-hand cars could reach $20,000, with that figure dropping to around $5,000 as car imports become more affordable amidst economic reforms.

Since 2011, the government has changed auto import policy on more than half a dozen occasions, the most notable coming in September 2011 with the introduction of the “new for old” policy, whereby cars over 20 years old could easily be replaced by newer models (those less than five years old).

If on an anecdotal level the policy changes have led to an increase in numbers, then the data supports this trend too. According to data from the Road Transportation Administration Department (RTAD), total vehicle registration within Myanmar reached 3.6 million (86 percent of which is motorbikes) as of July 2013, up from 2 million at the end of 2010, before the shift in policy began. Additionally motorbikes, so popular in all major areas outside of central Yangon, continue to see an increase in sales, with a rise of eight to 10 percent per annum according to the data.

Much like the potential offered in practically, all of the industries that have opened up in-line with the “new” Myanmar, multinational giants within the automobile industry have been quick to take advantage in a country that offers huge economic potential in a range of areas due to its large, generally well-educated population and important strategic location between India and China.

One of the most notable early-movers was American giant Ford, which partnered with local RMA Group and Capital Star Group, to hoist its iconic blue, oval symbol above its Yangon showroom, which opened in October. Other American firms now operating within Myanmar include Chevrolet and General Motors, while popular German brands Mercedes-Benz who recently opened a new showroom and Volkswagen have taken notice, the latter of which teamed up with local company Yoma Strategic Holdings, which is operated by Burmese-Chinese behemoth Serge Pun.

However, it is the automakers from East Asia that appear to be best prepared to take advantage of the continued growth in Myanmar’s auto industry. According to the data from RTAD, more than 80 percent of the registered vehicles within Myanmar are from Japanese or Chinese companies, with Nissan recently unveiling plans for a branch to manufacture its Sunny brand in Bago Region, just outside Yangon, with operations planned to begin in 2015. Meanwhile, Toyota recently opened its second service centre in Yangon last year and is planning to open a Mandalay service centre in the near future.

Low-cost Chinese maker Chery – a popular brand in a country where worker salaries are often less than $100 per month – has commenced work on what it estimates to be 3,000 to 5,000 vehicles per year, while India’s Tata opened its first Yangon showroom in 2013.

International players have timed their involvement in Myanmar well, observers say. An industry report by global consulting firm Frost & Sullivan, entitled ‘360 Degree Perspective of the Automotive Market in Myanmar’ estimated that Myanmar’s auto market is likely to grow by 7.8 percent per annum to 2019, fuelled by what it says will be a growing economy, improved infrastructure and improved integration with ASEAN, with particular reference to the ASEAN Economic Community, an EU-style bloc between the member states expected to begin in 2015.

“However, factors such as unpredictable regulatory changes, high car prices, an under-developed auto service market and inadequate road infrastructure might hinder the potential growth,” warned Dushyant Sinha, associate director for Frost & Sullivan’s Asia Pacific office.

The report added that the growth would be dominated by companies from China and Korea who would benefit with their affordable prices and smaller engine sizes when compared with their Japanese rivals. The report also predicted that companies from the US and Europe would struggle to grab too big a market share as spare parts and after sale service support are still limited within the formerly isolated nation