© serban enache PCB | April 21, 2015

Competition rises in Indonesian automotive industry

Competition in Indonesia’s automotive industry continues to heat up as the vehicle ownership in the country is forecasted to grow 51% by 2020.
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 was analyzing during a visit this March 2015.

Vehicle ownership is forecasted to grow 51% by 2020 reaching over 7%. For the same period, German’s vehicle ownership is expected to increase only 2%. With 90% market share, Japanese car manufacturer dominate the automotive market in Indonesia. They localised and adapted to consumer needs early and are experts in knowing and learning what consumer really want.

However, the fight for market share here is so tough that one manufacturer now decided to cease production in the country.

Today SUV’s (sport-utility vehicles) and MPV’s (multi-purpose vehicles) are the new success stories in Indonesia.

Car manufacturer here are mainly organized by grouping companies together for joined sales activities.
For example:
  • Astra Group: Toyota, Daihatsu, Isuzu, Peugeot, BMW and Lexus
  • Indomobil: Nissan, Suzuki, Audi, VW
  • Krama Yudha: Mitsubishi

CML received a further refined picture while visiting some important car manufactures in Indonesia in March 2015.

General Motors
GM decided to pull the plug on their assembly plant in Bekasi by end of June 2015, axing 500 jobs. Their annual production capacity in Bekasi of 40'000 units was only utilized with 11'000 sold units in 2014 (their competition Toyota and Daihatsu had sales over 578'000 cars in the same period).
Underutilization, higher cost due to the fact that most of the parts were imported, sluggish sales of their mini-van Chevrolet Spin plus a market share of about 1% in Indonesia where some reasons for the decision.

In future, GM is expected to penetrate the market with the help of joint venture Chinese partner, SAIC Motor Corporation. They will build a new production plant near Jakarta (going live by 2017 with a capacity of 150'000 vehicles) but won’t take over GM’s plant in Bekasi.

Mitsubishi has a dominating market share in the commercial vehicle segment (light, medium trucks) which they mainly sell to mining and the 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 160'000 units annually for MPV’s (Multi-Purpose Vehicles).

In 2014 Nissan opened a second production plant in Indonesia. The production capacity is now 250'000 units. Government approved Nissan’s license 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 20km/L and a high percentage of local content.

Theo Langer, CML’s VP Sales Asia and Global Sales Coordinator 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 our hotel (a journey of about 70km) took us over 2 hours using mainly highways. Some of the senior management of the car manufacturer we visited said; It is quite common that driving a distance of 40 kilometers 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 on Jakarta.

In summary Theo Langer concluded: “The purpose of our visits 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 discussions 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 a 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 will try its best to support this expansion with our local support.”


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