Eye on Indonesia

The automotive industry has had their eyes on Indonesia as its middle class continues to expand and the country’s economy matures. Its population of 240 million has been enjoying a significant rise in per capita income which will only increase car ownership. For now, vehicle ownership in Indonesia is low – roughly 80 vehicles to every 1000 citizens. Its neighbour, Malaysia, has 330 vehicles to every 1000 people. But as improvement to their living standards continues to take place rapidly, it is an untapped gold mine for any auto manufacturers. Ricardo Strategic Consulting released a report last month which pinpoints Indonesia as one of the key locations for vehicle sales from year 2020 onwards. Indonesia, along with other “Rising 15” countries, had showed promising development in its economy during the past decade, with GDP growth exceeding 9%. The other countries included in the 15 are Malaysia, Vietnam, the Philippines and Thailand. Frost & Sullivan Asia Pacific also commented that Indonesia is expected to account for 2.3 million vehicles by 2019. Besides the earlier mentioned factors, Frost & Sullivan also noted that this is driven by increased investments in the automotive industry in Indonesia as well as introduction of regulations that help boost domestic automotive growth.

Many automakers had already recognised the potential in Indonesia and are furiously racing to stake an early claim of the market share. Among them is General Motors (GM) which had seen a 120% increase in 2013 sales so far. Subsequently, they will be reopening a shuttered plant in Bekasi to produce passenger vans, in an investment plan amounting to USD150 million. Besides GM, according to the Indonesian Minister of Industry, MS Hidayat, Volkswagen (VW) will be investing USD266 million to open a manufacturing plant in West Java, in a joint venture with a local firm. It is set to begin churning out vehicles in 2017. VW has yet to official confirm plans but they have not outrightly denied the rumours. India based Tata is also fighting for a piece of the action. In September, they launched a sports utility, a MPV and a hatchback in Indonesia. Besides these commercial vehicles, they plan to enter the heavy vehicle market with their tippers and dumpers for the mining industry, as well as the public transport sector with their buses and people-mover vehicles. Indonesia’s Low Cost Green Car (LCGC) programme has already seen eager participation from several auto manufacturers. The LCGC entails a waiver on luxury tax for energy efficient cars, which significantly lowers the entry price to own a vehicle. For now, however, the glowing numbers could dim as lending rates was recently raised in August, from 5.75% to 7%, within a short span of 2 months; the Rupiah has depreciated around 10% against the US dollar this year, which will cause the price of imported vehicles or those with imported parts to rise. Still, if forecasts are correct, the country is set to rebound next year.