Indonesia rides its way to being next auto hub

Indonesia rides its way to being next auto hub 

Linda Yulisman, The Jakarta Post, Jakarta | Business | Mon, April 14 2014, 10:50 AM

Indonesia, driven by its growing car market, looks to be heading toward becoming an important automobile-production hub, not only for its own market, but also for other developing countries.
Despite higher interest rates and surging production costs, car sales expanded higher than expected in the first quarter of this year to 328,254 units, a 10.93 percent year-on-year increase, according to the Association of Indonesian Automotive Manufacturers (Gaikindo).
If such a quarterly-growth rate continues throughout this year, sales may surpass the industry’s annual target of around 1.2 million units — the same figure as recorded last year.
“The rapidly growing domestic automotive market has created an opportunity for Indonesia to become an automotive production base not only in Southeast Asia but also beyond, to cover the Middle East and Africa,” said Economic Research Institute for ASEAN and East Asia senior policy coordinator Yoshifumi Fukunaga.
He added that with larger production capabilities, the industry would be able to reduce costs and improve efficiency.
Strong sales growth, driven by the purchasing power of the emerging middle class, will enable local car manufacturers to further increase production capacity, which would in turn, also encourage the entry of more autoparts suppliers into the domestic market.
At present, Indonesia now has only 800 autoparts suppliers, much lower than the 2,300 suppliers in Thailand, the region’s current automobile production base.
Led by market leader Toyota, Indonesia has now exported sedans, as well as sports utility and multi-purpose vehicles to more than 70 countries worldwide. Car exports, which reached US$4.45 billion last year, are expected to rise by 10 percent this year, driven by surging demand in existing markets like Thailand, Saudi Arabia, the Philippines, Japan and Malaysia.
Government officials are even more upbeat. They estimate exports may potentially double to around $9 billion in 2017 as the expansion of existing facilities and the opening of new plants would make locally-assembled cars more competitive in foreign markets.
To become an export hub for a particular type of vehicle, the automotive industry needs a sizeable domestic market, said Frost & Sullivan associate director of the automotive and transportation division for Asia Pacific, Dushyant Sinha. Indonesia can, for example, become the production hub for four-seat minivans — the so-called low-cost green car (LCGC) — if the 1,000 cc cars are able to attract demand in the domestic market.
Thailand, which has already begun producing a similar type, sells half of its eco-car output domestically.
“It will be easier for Indonesia to export LCGC cars in the long run since the cars will likely able to control the large segment of the local car market,” Sinha said.
Less than 5 percent of Indonesia’s population of about 240 million own vehicles. To boost the size of the domestic market, the government removed the luxury tax last year on cheap cars sold at Rp 100 million ($8,800) each, a benchmark considered affordable to the masses, which will help the world’s fourth-populous nation achieve 2 million unit sales by 2017 as estimated by industry officials.
Indonesia’s potential to become the next automobile production hub, nevertheless, could be eroded by, particularly, the absence of government incentives for exports, inefficient logistics and poor infrastructure.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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