Carmakers flock to new southeast Asian growth frontier

Last updated: October 6, 2013 5:06 pm

Carmakers flock to new southeast Asian growth frontier

By Ben Bland in Jakarta and Henry Foy in London

 

Until recently, the top choice for first-time car buyers in Indonesia was a Toyota Avanza or Daihatsu Xenia, the family and pothole-friendly seven-seat people carriers that dominate the nation’s traffic-clogged streets. But when Okko Agus Suwarso decided to buy his daughter a car, he opted for a five-seat Daihatsu Ayla, one of a new range of “low-cost, green cars” that global manufacturers are hoping will turbocharge growth in a thriving market at the forefront of an automotive boom in southeast Asia.

“The interior is nice, the fuel consumption is very efficient and the price is also affordable,” says Mr Suwarso, who lives in Sukoharjo on the island of Java, the heart of the fast-growing Indonesian economy.

With car demand slowing in China and reversing in India, global marques with excess capacity are retooling their strategy in southeast Asia and taking bold steps into previously overlooked markets such as Indonesia, Malaysia and even Myanmar, barely 18 months after the west restarted diplomatic relations with the previously isolated nation.

“The Asean nations such as Indonesia, Malaysia andThailand form one of the regional ‘clusters’ that we believe should be on the growth list of every [carmaker] and supplier,” says Xavier Mosquet, managing directory at the Boston Consulting Group in Detroit. “For players in Europe, the US, and Japan, geographic diversification has never mattered more than it does today in order to balance local economic storms.”

Japanese manufacturers such as Honda, Nissan andToyota have led the way in southeast Asia, rolling out low-cost models in countries with increasing average incomes, rising aspirations and low car ownership levels.

Car ownership in Indonesia stands at about 45 per 1,000 people. In Myanmar it is barely seven per 1,000, and almost all are used vehicles. In Europe it is roughly 450 per 1,000.

“We’re going to Myanmar, we’re growing in Indonesia. All of this for me is ensuring we are tuning up the engines for growth for Nissan in the future,” Carlos Ghosn, Nissan’s chief executive, told the Financial Times after unveiling plans this month to build a $75m factory in Myanmar, the first car plant in the country.

Twenty years ago, global brands such as General Motors and Volkswagen were taking tentative steps into markets such as China and India. Now the race is on to look even further afield and to catch up with more Asia-focused automakers that have done the early running.

“With the Brics becoming crowded with both global and local players, many global automakers are now looking to tap white space in what up to now have been more marginal or volatile markets,” says Ian Fletcher, senior analyst at IHS Automotive, a consultancy and forecaster.

The Asean nations such as Indonesia, Malaysia and Thailand form one of the regional ‘clusters’ that we believe should be on the growth list of every [carmaker] and supplier

– Xavier Mosquet, Boston Consulting Group

In Indonesia, the region’s largest car market, manufacturers from Toyota to Daihatsu and Nissan toSuzuki are betting that their recently launched “low-cost, green cars”, which sell for Rp76m-Rp120m ($6,600-$10,400) – 40 per cent lower than traditional people carriers – will open up car ownership to hundreds of thousands of people who could never afford one before.

Even before the initiative to promote small cars – which benefit from generous government tax exemptions but are required to have more fuel efficient engines – car and parts manufacturers have been investing billions of dollars in Indonesia.

Driven by increasing incomes and an acute lack of public transport, the Indonesian auto market is expanding at a rapid clip, with 1.1m cars sold last year, up 25 per cent from 2011.

Wilianto Ie, an analyst at Nomura in Jakarta, predicts that the market will hit the 2m vehicle mark in 2018, by which time small cars will account for 40 per cent, up from zero, while IHS expects roughly 50 per cent growth in Vietnam and the Philippines in the same period.

That is attracting new entrants such as India’s Tata Motors, which is considering developing an Indonesian version of its ultra-cheap Nano, to GM, which reopened its Indonesian factory earlier this year after a long hiatus.

Alongside Indonesia’s small car drive, Thailand has a similar eco car policy, Malaysia has rolled out a national automotive initiative, and the Philippines is shortly to announce its government road map for automotive development, as the wider region looks to replacement and new customer demand to drive sales.

Davy Tulian, the marketing director of Suzuki’s Indonesia subsidiary, believes that about half of small car buyers will be looking to pick up a more fuel-efficient second or third car, while 30 per cent will be trading up from a used car and 20 per cent will be trading up from a motorbike.

Toyota and its subsidiary Daihatsu, which control about half of the Indonesian car market, were first to launch their small cars alongside Honda. Suzuki is still finalising its version of the small car, which the government requires to have an Indonesian brand name and, eventually, 80 per cent local parts.

“The competition will be very tough,” says Mr Tulian. “It will all be about price and engine technology, with the most efficient engines and lighter bodies winning out.”