Smaller Japanese automakers like Suzuki, Mitsubishi and Isuzu (as well as new entrants) will gain the most from the implementation of the ASEAN Economic Community (AEC), which will create a more level playing field for their competition against larger rivals, says a research firm.

"However, big Japanese OEMs [original equipment manufacturers] are still likely to continue to lead the market," said an analyst at the business-strategy house.

"The low level of motorisation in ASEAN indicates a strong growth potential, while the heavily motorised markets of Western Europe and North America represent a saturated replacement market," the analyst said.

However, the analyst said that given the sheer scope and complexities of various outstanding issues, there was a strong likelihood that closer to 2015 some elements of the AEC would be put on hold.

Indonesia, Thailand and Malaysia are the key automotive markets in ASEAN, accounting for 89% of the passenger-car market. "However, at the global level, Indonesia, Thailand and Malaysia do not figure amongst the top 15 passenger-car markets."

The analyst said the BRIC countries (Brazil, Russia, India and China) were much bigger than the key ASEAN markets in terms of industry volume, and competed aggressively for investment in the automotive sector. The attractiveness of those markets, led by China and India, stems from their larger economies. As an integrated market, ASEAN will be more competitive and a better match to the BRIC economies.

"Smaller markets, with their individual automotive sectors, will continue to be plagued with issues of productivity and efficiency. Sector integration will lend economies of scale, which in turn will help reduce costs and improve competitiveness," the analyst said.

The analyst also said the capital-intensive nature of the automotive sector, coupled with the ever-increasing competitive pressures, pushed for increased investment, technical as well as financial, for the local industry to remain competitive and globally relevant.

The analyst added that an integrated automotive sector would enhance ASEAN's attractiveness as an investment destination and help the local players, held back by limited resources, to survive. But political compulsions, accentuated by the development divide, serve as key restraints for the implementation of the AEC.

The analyst also said local OEMs would find it a challenge to maintain their existing market positions and some degree of consolidation was expected. OEMs and suppliers should focus on increasing value and reducing the cost of safety systems.

Under the full implementation of the AEC, a structural change is likely in the automotive sector. "Local players, both OEMs and suppliers, stand to lose the most. Overall, market concentration is set to decrease," the analyst said.