AFTA: Turning the ASEANDream Into Reality

AFTA 2002 Symposium

Jakarta, IndonesiaJanuary 31, 2002

John ParkerPresident, ASEAN Operations

Ford Motor Company

The Automotive Industry Imperative

National

CKD

Product DesignAnd Development

GlobalStages of

Liberalization

Low Value-added

Limited ExportsLow Technology

The foundation of sustainability in the auto industry

is global competitiveness, which is a functionof continued liberalization

Regional

IntegratedManufacturing

ASEAN

Today

Sustained Investment Growth

High Value-added Jobs and Strong Export Growth

ASEAN

under AFTA

ASEAN Auto Growth… A Strong Recovery

Growth1999-2000

Industry Size

2002(f)

Veh/1000

Driving Age Pop.

Thailand 22% 315,000 136Malaysia 19% 402,000 307Indonesia 223% 315,000 33Philippine

s 12% 96,000 49

Vietnam 67% 29,000 4TOTAL 47% 1.15 Mil Ave. 106China 14% 2.4 Mil 15

Strong Recovery after Crisis, but lags China in overall size.

ASEAN Industry Size Only Competitive if Viewed as One Region

$50 $60$46

$200

$100

$26

$650

$80$500$70

Ford Thailand GM ThailandBMW Thailand Toyota ThailandOriental-Honda Malaysia Nissan Indonesia Ford Philippines Ford VietnamDC Vietnam DC Indonesia

Millions US ($)

Auto Manufacturers Have Invested Heavily in ASEAN since 1995…

BUT…

5101520N/AN/AVietnam

5101520N/AN/AN/AN/AMalaysia

515Indonesia

52020Philippines

51520Thailand

20082007200620052004200320022001COUNTRY

Manufacturing Rationalization starts in 2003:

Is it “AFTA” or the “Thai-Phil-Indo FTA?”

PHILIPPINESPHILIPPINES

INDONESIAINDONESIA

THAILANDTHAILANDFord Ranger

Mazda FighterVolvo S80Chevrolet Zafira

Honda AccordNissan Sunny

Toyota Altis

Honda StreamHonda CR-VNissan X-Trail

Toyota Vitz Honda StreamHonda CR-VToyota Vitz

Ford LaserFord Escape

Mazda ProtégéMazda Tribute

Ford RangerMazda Fighter

Chevrolet ZafiraToyota AltisHonda Fit

Ford LaserFord Escape

Mazda ProtégéMazda Tribute

MALAYSIA ?MALAYSIA ?

VIETNAM ?VIETNAM ?

Source: Press Reports

When Will Malaysia Join AFTA? Uncertainty Jeopardizes Regional

Integration Largest Mid-size Car Market in ASEAN

(Represents 35% of ASEAN Vehicle Market). 5% AFTA Duty for CBU Deferred Until 2008 (5

years later than Thailand and Philippines and 6 years later than Indonesia).

Malaysia Could Be Integral Part of Regional Production But investment decisions for 2005 are being made

today. Damages Investor Confidence in All of ASEAN Gives Economies of Scale Leadership to China

CBU AICO: A Great Example of Forward Thinking Delivering

Investment into ASEAN

PARTS

BENEFITS Eliminates Duplicative Vehicle Assembly and

Supply Bases. Major (Multimillion Dollar) Investment in

Both Countries for New Products, possible because of Greater Economies of Scale.

“Sneak Preview” into AFTA – product complementation, plant rationalization, economies of scale.

Ford Thailan

dFord

Philippines

Reality: China’s Diverting Investment Dollars From ASEAN

Source: United Nations(Jan. 2002)

FDI Inflows

05000

100001500020000250003000035000400004500050000

1990 1992 1994 1996 1998 2000Year

Mill

ions

$

ASEAN-10China

9% ofAsia FDI

18% ofAsia FDI

61% ofAsia FDI

38% ofAsia FDI

Consider:1) China took 15% of Automotive FDI in 1990 but that number increased

to 64% in 2000.2) Globally, FDI dropped almost 50% in 2001.3) According to JETRO, 8% of Japanese MNCs will relocate from ASEAN to

China in 2002 because of WTO accession.

With WTO Accession, China Will Increase Exports

to Member Countries

Unless AFTA is implemented for the auto industry on time in all countries, China will continue to

attract more automotive FDI and will soon start to EXPORT.

China’s Share of Global Exports, in Percent

1995 2005eNon-WTO

2005eWTO

Textiles 8.4% 8.8% 10.6%Apparel 20 19 47Metals 3.4 5.5 6.5Autos 0.1 0.7 2.2Electronics 5.0 7.8 9.8Total 3.7 4.8 6.8 Source:

UBS Warburg

What ASEAN Should do to Position for Future Growth

AFTA is key – Regional Tariffs Must Come Down• Most Critical Aspect of Growing Volume.• Malaysia’s Delay Closes the Largest Passenger Car Market in

ASEAN to Regional Integration Until 2008. Meet WTO TRIMs Obligations Now

• Continuing TRIMs in Malaysia and Philippines Slows Down Global Competitiveness in Component Manufacturers and Prevents Regional Sourcing Integration for Components and Parts.

Harmonize Vehicle Emissions/Safety Standards Harmonize “External” MFN Tariffs

• Will Result in Lower Cost CKD Imports – China Drops to 10% in 2006!

Modernize Vehicle Tax Policies• Current Structures Actively Suppress and Distort What Consumers

Want.

AFTA: Turning the ASEAN Dream

Into Reality

Thank You