Indonesia's Car Market Takes the Fast Lane

The country has overtaken Thailand as the largest automotive market in Asia Pacific region.

Automakers from Japan to India are eyeing a bonanza in Indonesia, Southeast Asia's largest economy where a newly wealthy middle class are splashing out on cars like never before. With the economy growing at a brisk 6.5% a year, more Indonesians are climbing into the middle class, hungry for cars and other status symbols their newfound wealth affords.

It is welcome news for automakers who, starved of sales in the ailing economies of Europe and the United States, are now circling Southeast Asia's fastest-growing major economy.

Last year, Indonesians bought 890,400 cars and this year they are expected to snap up around 940,000, according to a report by business research group Frost & Sullivan.

"Indonesia has overtaken Thailand as the largest automotive market" in the Asia Pacific region, the report said.

This year "will witness the launch/facelift of around 25-30 new models in Indonesia that will further increase the sales volumes growth," it added.

The strong sales represent something of a gold rush for the industry, and automakers are sinking funds into new factories and showrooms to tap the money flooding the market.

"Last year, foreign automakers pledged to invest nearly $2 billion in Indonesia over the next few years. This year, we will see the realization of those promises," said Budi Darmadi, an industry ministry director.

Japanese manufacturers, who already hold 90% of the market, are leading the way.

Toyota has a second production plant in the pipeline, Suzuki is planning to open its third and Nissan is spending $250 million to expand existing facilities. Toyota, trying to hang on to its 35% market share, wants to boost production from 110,000 last year to 180,000 by 2013.

Gunadi Sindhuwinata, a commissioner at Jakarta-based Suzuki Indomobil Motor said his company is planning a two-year, $800 million investment in Indonesia.

Buoyed by soaring sales last year, automakers are confident the trend will continue. Nissan's annual sales surged by 50% last year, and Suzuki's by a third. Ford and General Motors -- and even India's Tata group -- are also jockeying for profits. Ford sold twice as many cars in Indonesia last year as it did the year before and wants to repeat the feat in 2012. The company opened seven new dealerships nationwide last year, and plans to add eight more this year.

General Motors is investing $150 million to reopen a mothballed plant in West Java to begin producing minivans, in hot demand among Indonesians.

Meanwhile, Indian automaker Tata Motors says it is "crystallizing its plans" for Indonesia, where it is not yet present. "We have chosen Indonesia because we believe that customers in Indonesia would appreciate the vehicles that we market," spokesman Debasis Ray told AFP from the company's Indian headquarters.

Last year Indonesia overtook Thailand in car sales after the Thai economy was devastated by floods. But experts say it still has a long way before outdoing Thailand as an auto manufacturing hub.

Thailand, where factories roll out cars for more than 200 export markets, is often referred to as the "Detroit of Asia."

Despite its galloping economy, Indonesia is snarled with red tape, corruption, nearly non-existent infrastructure and traffic gridlock. At least 1,000 new vehicles are added every day to the streets of Jakarta, where some eight million cars crawl through one of Asia's worst traffic jams every day, according to private and government studies.

In 2014, according to the private Indonesian Transportation Society which includes academics and bureaucrats, traffic in Jakarta will become totally gridlocked.

"Jakarta has major challenges in managing mobility," Frost & Sullivan said in its report. "Traffic jams not only waste productive time but also slow down the market growth."

Copyright Agence France-Presse, 2012

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