Indonesia: In the driving seat

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Indonesia's government is gearing up to cater to the country's increasing love affair with the automobile, unveiling plans to develop the first home-grown saloon car aimed specifically at lower-income families.


While attending the opening of an automotive trade show at the end of July, the minister of industry, MS Hidayat, announced that the government was progressing towards the production of an indigenous family car, which would combine low cost with low emissions.

Under the scheme outlined by the minister, the car will have an engine capacity of 1000 cu cm. With a price of around $8900, the car will retail for less than many similarly sized rivals and have at least 80% of its parts locally produced, Hidayat said.

The design of the still unnamed vehicle should be completed by the end of the year and production set to start some time after that, he said, marking a new phase in Indonesia's industrial development.

"This is our dream, after having an automotive industry assembling and exporting for 40 years. This is also for our national pride," said Hidayat of what he called the "Made in Indonesia" car.

While envisioned as a locally made and designed vehicle, the production is to be a joint venture, with a number of overseas carmakers having been considered to join the project, the minister said. According to local media reports, a Japanese partner is favoured.

Hidayat's announcement that Indonesia's first domestically produced car was on the drawing board follows a statement in April that the government was considering offering tax incentives to support automotive component production.

"With such fiscal incentives we hope more automotive component plants and other supporting industries will be established in Indonesia," Hidayat told local media.

The process of shifting the focus of the country's automotive sector from assembling imported components to producing parts to manufacturing a home-grown car is part of a larger plan by the state to develop Indonesia as an automotive production base, creating employment and investment opportunities and building on the estimated 300,000 jobs in the sector.

The news that Indonesia intends to roll out its own national car may not be welcomed by the many international manufacturers involved in the expanding market. If, as Hidayat projects, the "Made in Indonesia" vehicle hits sales of 400,000 units, at least some of this growth is going to come at the expense of overseas competitors. While the local vehicle is aimed at the budget segment, some of these potential buyers will be wooed away from rival marques.

However, Indonesia has been a bit slow off the grid in terms of developing its own automotive industry. Malaysia and more recently China have built up a strong brand awareness, based on sound products, for their respective automotive sectors, with the Proton and the Chery, for example, selling well in overseas markets – including Indonesia.

While potentially highly marketable at home, the delayed move into production could mean that an Indonesian car may have trouble making the drive into the wider Asian region and beyond.

That said, the home market is a lucrative one, which is gearing up for even bigger and better things in the coming years. Strong sales in the first half of 2010, with more than 370,000 units leaving the showrooms, have prompted predictions of a record year, with 700,000 new registrations expected for the 12-month period.

If achieved, it would mark a strong turnaround for the sector, which posted sales of 486,060 in 2009, well down of the then-record high of 607,800 the year before.

As in past years, the January to June sales figures were dominated by Japanese producers, with Toyota selling 140,000 units; Daihatsu, 55,500; and Mitsubishi, 52,148 vehicles. This apparent preference for Japanese cars could well be a factor when the government chooses a partner for local production. Recent estimates suggest that the domestic market will continue to grow in the coming years, with up to 1m sales annually predicted by 2015. If the government does get its domestic production lines rolling by then, and is able to develop an attractive low-cost vehicle, its 'Made in Indonesia' marque could well claim a sizeable slice of that.

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