A prospective buyer looks at cars at a car showroom in Jakarta. (AFP Photo/Bay Ismoyo)
Indonesia’s growing middle-class, the removal of tariff barriers ahead of the Asean Economic Community in 2015 and the exit of Australia’s last car manufacturer from the country are some of the windows of opportunities seen as available to the country’s expanding automotive industry.
In the three years leading to 2013, a total of $6.5 billion was invested in Indonesia’s automotive sector, increasing the number of workers in the industry to 1.32 million from 715,000. The significant boost gave Indonesia the confidence to try and catch up to Thailand, Southeast Asia’s biggest car market and producer, whose leading position was under threat due to domestic political instability.
Masaki Honda, a Singapore-based consultant for business research firm Frost and Sullivan, said Thailand’s car sales fell 8 percent to 1.32 million units last year, and may drop a further 11.7 percent to 1.17 million this year.
That means Indonesia, with its expected car sales of 1.31 million units in 2014, may likely replace its rival as the region’s leading automobile market.
“Indonesia is inching closer to the number one position,” said Honda.
In a market where Japanese car brands are the preferred choice, annual sales figures have been growing at a double-digit pace and continue to reach new record highs year after year. In 2012, Indonesia surpassed the sales threshold of one million cars for the first time, before jumping to 1.23 million units last year.
Rahmat Samulo, marketing director of Toyota Astra Motor, said car ownership in the country is predicted to reach 300 units per 1,000 people by 2025, from the current 80 units per 1,000 people.
“Thailand produces 2.5 million cars per annum. However, thanks to investments in the past two years, our production capacity has already reached two million units per year,” said Industry Minister, MS Hidayat, in a conference on Monday.
Thailand is home to some 2,200 components and spare parts manufacturers, while Indonesia has roughly 1,550 companies, according to the minister.
In addition, there has been an increasing tendency in recent years for car manufacturers to export their products to neighboring countries, Middle Eastern nations and even as far as Africa.
Last year, Indonesia exported 170,907 completely built units (CBU), 105,380 completely knocked-down (CKD) cars, and 12.3 million car components, generating an export revenue of $4.4 billion. The objective for this year is $4.8 billion.
The AEC in 2015 is expected to present even more opportunities to the archipelago, as the integration will bring about the removal of regional tariffs, harmonization of technical regulations, mutual recognition of certification and streamlining of customs procedures and distribution systems.
The biggest challenge, however, is poor infrastructure.
“Infrastructure development should be planned better,” said Noergajito, secretary general of Gaikindo, the country’s automotive industry association.
Thailand had managed to stay ahead of Indonesia as the former was able to build better infrastructure and policies to support the automotive industry.
“They have two terminals specifically for car [exports],” he added.
Gaikindo’s Noergajito said Indonesia’s government should accelerate the planned construction of Cilamaya seaport in West Java, which has seen delays for two years.
Its completion would provide car manufacturers — whose factories are located in Karawang, West Java — with a far more convenient method of shipping their products overseas, according to Noergajito.
The seaport is located a mere 30 kilometers north of Karawang, where roughly 47 percent of the country’s car production takes place.
“Karawang could be the Detroit of Indonesia,” Noergajito said.
Honda of Frost and Sullivan said the country’s automotive industry must constantly improve itself to adhere to international safety standards and regulation, so that it can be better placed to capture opportunities from developed countries like Australia. Indonesia’s southern neighbor will be without car manufacturers by 2017, leaving its domestic demand of 1 million units to be filled with imports.
“The product quality of Indonesia’s automotive industry is still very much tailored to the Indonesian market. In order to capture opportunities in markets like Australia, we must adopt global standards.
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