By Peter Alford
THIS year Indonesia could pass Thailand to become the largest vehicle market, by unit sales, in Southeast Asia.
That’s no small thing, given Thailand has edged into the world’s top 10 vehicle producers and Indonesian output, at the growth rate of the past five years, will get there by 2020.
The potential of this market for Australian components makers was acknowledged, belatedly, when the Federation of Automotive Products Manufacturers sent its first delegation to Jakarta in November.
Industry and Innovation Minister Greg Combet has recently appointed former Ford Indonesia president Will Angove to the new position of automotive supplier advocate with a brief to help auto components suppliers “compete in new markets”.
Less innovatively, Mr Combet’s headline task for Mr Angove is getting local fleet managers to buy more local vehicles. His focus should be assisting Australian suppliers to escape the orbit of a fading industry that builds 220,000 units annually to engage with the vastly larger and growing Southeast Asian auto sector.
Indonesia and Thailand produced more than a million vehicles for their domestic markets for the first time last year but the Thais are still far ahead in quality, quantity and value to the national economy.
However, Indonesia has the advantage of potentially greater domestic scale, international makers keen to commit, a ready-made export opportunity and — if planners care to study the Thai industry — a successful development model.
The Indonesian vehicle sector had a break-out 2012, but Thailand’s was astonishing. A supply and demand rebound following the destructive flooding of late 2011, coinciding with a rare lengthy stretch of political stability, and especially a government rebate to first buyers lifted domestic sales 81 per cent to 1.44 million.
Because of hot domestic demand, exports at almost one million units undershot projections, but overall Thai production rose 68 per cent to 2.45 million vehicles.
Although about half the vehicles ordered under the rebate scheme are being delivered in the first half of this year, and exports should firm, analysts expect domestic sales to fall this year to 1.2 million.
Almost 1.12 million new vehicles came on to the Indonesian market last year, which grew 25 per cent, and more than 250,000 units were exported.
Export volumes were up 40 per cent last year, driven by other developing markets’ interest in the low-cost “mini-MPV”, the trademark Indonesian vehicle.
GM is returning to Indonesian manufacturing, after an eight-year break, with a Chevrolet mini-MPV, manufactured in Brazil but designed, the company says, for Indonesian conditions.
With a base market of about 50 million discretionary spenders expected to double inside the next decade, Indonesia has domestic scale to underpin high volume vehicle exports.
The government is trying to accentuate the potential through the so-called Low Cost Green Cars program, which would remove or partly rebate the luxury tax applying to all new private vehicles.
The scheme was announced last year with four Japanese carmakers — Toyota (which has 36 per cent of the domestic market), Daihatsu, Suzuki and Honda — immediately committing.
Nissan has since said it would revive the Datsun brand to build low-cost green vehicles for Indonesia, India and Russia. But 12 months after Industry Minister MS Hidayat unveiled the LCGC plan, and almost three months after it was planned to come into effect, the government hasn’t settled the parameters: what levels of tax relief, what minimum fuel efficiency, what qualifying price range.
Indonesia is becoming an important car market. But, then again, Brazil and Mexico already are; it’s almost an automatic function of demographics and development.
Whether Indonesia also becomes a significant component of the global manufacturing chain depends to an important extent on carefully focused planning, regulation and incentives.
That is where Bangkok’s industrial policymakers have proved adept and where Jakarta’s are notoriously deficient.