Taking a deeper look into the Indonesian Automotive Industry
Little demographics first:
Today, about 4% of Indonesia’s population owns a car.
50% of the 240 million population is under 29 years old.
These facts plus the rapidly emerging middle class signal a huge growth scenario for the automotive industry, a business segment CML EurAsia was analyzing during a visit this March 2015.
Vehicle ownership is forecasted to grow by 51% by 2020 reaching over 7%.
For the same period, Germany’s vehicles ownership is expected to increase by 2% only. With 90% market share, Japanese car manufacturers dominate the automotive market in Indonesia. They localized and adapted to consumer needs early and are experts in knowing and learning what consumers really want.
However the fight for market share here is so tough that one manufacturer now decided to cease production in the country.
Today’s SUVs (Sport Utility Vehicles) and MPVs (Multi-Purpose Vehicles) are the new success stories in Indonesia.
Car manufacturers here are mainly organized by grouping companies together for joint sales activities.
E.g. Astra Group: Toyota, Daihatsu, Isuzu, Peugeot, BMW and Lexus
Indomobil: Nissan, Suzuki, Audi, VW
Krama Yudha: Mitsubishi
CML EurAsia received a further refined picture while visiting some important car manufactures in March 2015.
GM decided to pull the plug on their assembly plant in Bekasi by the end of June 2015, axing 500 jobs. Their annual production capacity in Bekasi of 40000 units was only utilized by 11000 sold units in 2014 ( their competition, Toyota and Daihatsu, had sales of over 578000 cars in the same period).
Underutilization, higher cost due to the fact that most of the parts were imported and sluggish sales of their mini-van Chevrolet Spin plus a market share of about 1% in Indonesia, were some of the reasons for the decision.
In future, GM is expected to penetrate the market with the help of a joint venture Chinese partner, SAIC Motor Corporation. They will build a new production plant near Jakarta (going live by 2017 with a capacity of 150000 vehicles) but won’t take over GM’s plant in Bekasi.
Mitsubishi has a domination market share in the commercial vehicle segment (light, medium trucks) which they mainly sell to the mining and farming industry. In order to improve their position in the passenger cars segment, they are now planning a new plant for 2017 (USD 502 million) in Cikarang with an output of 160000 units annually for MPVs (Multi-Purpose Vehicles).
In 2014, Nissan opened a new production plant in Indonesia. The production capacity is now 250000 units.
The government approved Nissan’s licence for the LCGC (Low Cost Green Car) program. For consumers it is a tax-exempting program to foster low cost fuel efficient cars with a gas mileage of 20 km/L and a high percentage of local content.
Figure 1: Just to get a feeling for the sheer size of a typical new automotive plant coming on stream soon. Here the new 338 million USD Honda 2-wheeler factory in Karawang, still under construction. We passed it on our way to the talks with nearby rival, Nissan. Capacity of the shown plant: 1 million motorbikes per year.
Theo Langer, CML EurAsia’s Sales & Marketing Director said. “We arrived at Jakarta on a Sunday, where traffic is supposed to be somewhat more relaxed, but still our trip from the airport to the hotel (a journey of about 70 km) took us over 2 hours using mainly highways. Some of the senior management of the car manufacturer we visited said that it is quite common that driving a distance of 40 km from the factory to their homes consumes 2 hours of driving per one way.”
The growing traffic volume is taking its toll on travel times in Jakarta.
In summary Theo Langer concluded: “The purpose of our visit was to present and discuss our strategies – from a PCB supplier’s perspective – to further strengthen and secure the supply chain in car manufacturing.
Our proposals and ideas were received with interest. This may now open new avenues for cooperation. We will work on this.
It was good to see first-hand how dominant the Japanese car manufacturers in Indonesia really are. Early market entrance, strong brand reputation and good value when re-selling a car on the second hand market are witnesses for this.
In contrast our discussion with GM confirmed that intense competition and late localization into a regional market sometimes can be a recipe requiring drastic actions, while being only half way down the road.
The competition in Indonesia’s automotive industry continues to heat up. We are also seeing new Tier 1 suppliers entering the market and eating into the market share of rivals that have been here for a long period already. China’s SAIC is said to set up a manufacturing plant in Jakarta. Volkswagen is said to build a production in Cikarang.
All players are watching very carefully the currency development of the rupiah, the political performance of the new government and the road infrastructure in and around Jakarta that is choking under the exploding traffic.
A new law requesting the manufacturer to up the share of local content (up to 75%) is keeping the sourcing and purchasing departments of all 2 and 4 wheeler production sites very busy.
The development of Indonesia’s automotive industry is very dynamic. CML EurAsia will try its best to support this expansion with our local support.”