General Motors To Up Local Sourcing in Southeast Asia

Just the Facts:

• GM plans to increase purchases of components and services from Southeast Asian-based suppliers.
• GM executive says the automaker needs to build vehicles in the markets where they are sold.

BANGKOK, Thailand — General Motors plans to increase purchases of components and services from Southeast Asian-based suppliers to up to USD 1.6 billion per year within three years, Martin Apfel, president of GM Thailand and GM South-east Asia Operations (GMSEA), told reporters at a press conference in Bangkok yesterday.

Apfel said GM needs to build vehicles in the markets where they are sold. "For that to become a reality, we need more component localization," he said. The vast majority of the spending increase will be in Thailand, where the company currently spends around $200 million per year on outsourcing parts and services.

GM plans to ramp up vehicle production at its 140,000-unit plant in Rayong, Thailand, from next year with the launch of a new pickup truck range, to be followed by passenger vehicle derivatives including a midsize SUV.

The company hopes to increase its exposure to booming vehicle demand across the ASEAN region. In the first half of 2010, sales in the region's main markets increased by 41 percent to a record 1.18 million units.

General Motors needs a higher level of local sourcing also to support its new $500 million Thai diesel engine plant, which is due to become operational in early 2011.

Construction of the engine plant was halted in 2008 during the global financial crisis but resumed in 2009 after GM secured financing of around $400 million from a consortium of Thai banks. It will have an annual production capacity of 100,000 2.5- and 2.8-liter engines, which GM developed with the collaboration of Italian engine specialist VM Motori.

GM also assembles the Captiva SUV and the Cruze and Aveo passenger cars in Thailand, from CKD kits imported from its South Korean unit, GM Daewoo. Local content of these models is very low, which means that they incur high taxes across the ASEAN region. This has held back the company's sales performance in recent years.

Apart from Thailand, GM has a small assembly joint venture in Malaysia. Production at its Indonesian plant ceased several years ago but may be restarted once the company's regional strategy unfolds.

Other than its pickup-based program, the recently launched Cruze compact sedan is particularly important for the company's future growth in the region. "This model has Chevrolet's new global design features that are becoming the common signature on all new products," Apfel added.

To increase local sourcing, GMSEA will need to increase its regional engineering capabilities — particularly in Thailand. Apfel says GM is "growing our Thai engineering capabilities and are currently expanding the engineering center by 20 percent."

Inside Line says: GM looks to put down serious roots in the region. — Tony Pugliese, Correspondent