Indonesia seeks South-East Asia car industry supremacy

There are only three countries in Southeast Asia that engage in automotive manufacturing; Thailand, Malaysia and Indonesia. Last year Indonesia celebrated its victory over Malaysia in car industry - Indonesia’s car and vehicles production rose 51.5% to 704,715 units while Malaysia only managed a 16% increase to 567,715 units. The result is that Indonesia has now pushed out Malaysia to be the second largest car producer in Southeast Asia.

But Indonesia is not yet satisfied with that achievements, it wants the top spot.

Jakarta - Indonesia, South-East Asia’s largest economy with a population of 240 million, seeks to dethrone Thailand in car industry, the country’s officials and analysts said. Thailand is currently Southeast Asia biggest car producer.

‘With rising purchasing power among Indonesians, we are confident that Indonesia will be the largest car producer in South-East Asia soon,’ said Johnny Darmawan, deputy chairman of the Indonesian Automotive Manufacturers Association.

Another association official, Jongkie Sugiarto, said it would take only two years for Indonesia to overtake Thailand in terms of car production. Indonesia surpassed Thailand to be Southeast Asia biggest car market first half of this year.

Indonesia’s economy grew 6.5 per cent year-on-year in July, thanks to rising investment and strong domestic consumption as more people enter the middle class. Malaysia’s GDP on the other hand, grew 4 per cent while Thailand a sluggish 2.6%.
Indonesia, Philippines and Vietnam have replaced Thailand, Singapore and Malaysia as the region high-growth economies with GDP growing above 6% while the latter three 3-5%. Myanmar, Cambodia and Laos are also growing at above 6% but they are not expected to be a viable industrial powerhouse anytime soon. Brunei has the weakest economy at 1-2%.

From January to July this year, Indonesia’s domestic car sales stood at 506,743 units while production reached 467,418, according to the association. The Indonesian Automotive Association said Thailand domestic car sales stood at 504,914 from January to July while total production for the same period was 994,039, with exports making up the difference.

Several global car producers have announced plans to set up production hubs or expand their presence in Indonesia this year with investments worth more than 1 billion dollars.

US-based General Motors Co said this month that it would start producing cars in Indonesia in 2013, investing 150 million dollars to reactivate its abandoned manufacturing plant in West Java.

The plant would have an initial capacity of 40,000 units per year, the company said.
Toyota car manufacturing plant in Indonesia

Japanese carmakers Nissan Motor Co and Suzuki Motor Corp recently announced expansion plans, investing 250 million dollars and 800 million dollars, respectively, while France’s Peugeot SA and India’s Tata Motors Ltd have both expressed interest in building production bases in Indonesia.

Daihatsu Motor Co of Japan and the German manufacturer Bayerische Motoren Werke AG, better known as BMW, have just carried out expansions to their Indonesian facilities with investments of 246 million dollars and 12 million dollars, respectively.

Toyota and Honda have both been exporting from their Indonesian plants, and Tata also hopes to use its new plant as a regional production hub, according to the chairman of the Indian company’s investment board, Gita Wiryawan.

Recently announced tax breaks for industrial investments of more than 1 trillion rupiah (117 million dollars) could draw more companies to follow suit.
Indonesia Automotive Manufacturer Association says the future of Southeast Asia car industry would be Indonesian

‘Indonesia is a huge market, and car producers will not waste the opportunity to meet rising domestic demand for cars,’ said Hariyanto Wijaya, an analyst with Mandiri Sekuritas. ‘It is stable politically and has skilled workers in the automotive industry, we are ready to challenge Thailand for the position of largest car exporter’ he added.

Surpassing Thailand however, is not as easy as Malaysia. Thailand produced 1,644,513 units of vehicles last year, a growth of 64.6% - that is still more than two times Indonesian production plus a growth rate higher than Indonesia. Poor infrastructure is an obstacle to large-scale export, said Fauzi Ichsan, chief economist at Standard Chartered Plc bank in Indonesia.

Indonesia however, offers labors at competitive cost for carmaker firms. The minimum daily wage in the capital city of Jakarta area would be around 8 U.S. dollars, while in Thailand it was set at 10 U.S. dollars.

Indonesia offers huge domestic car market that is larger than Thailand. But the infrastructure problem in Indonesia could be the most issue that need to be addressed quickly by the government if it wants to overtake Thailand in automotive investments.

For Indonesia to catch up with Thailand, it needs ‘toll road networks, more ports and reliable electricity, so that exports become efficient,’ Ichsan said.

‘Until then, Indonesia as an automotive production hub will be hard to achieve,’ he added.

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