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Can mainland manufacturers crack the Indonesia auto market?

The 2013 Indonesia International Motor Show saw international car brands tussle for a slice of the country's dynamic auto market, while divisive domestic issues cast a pall over the recent huge growth in this dynamic sector.

Photo: The Indonesia Motor Show - 'bigger than Thailand' apparently.
The Indonesia Motor Show – "bigger than Thailand" apparently.

Billed as the "biggest in Asia", this year's Indonesia International Motor Show (IIMS) was the 21st iteration of the event and, in keeping with the international eco-friendly zeitgeist, low-cost green cars and low carbon emissions dominated proceedings.

The claims of the event's enhanced stature came from Johnny Darmawan, Chairman of the show's steering committee and President Director of Toyota Astra Motor. Speaking at the opening of the event, he said: "This is now the biggest motor show in Asia, bigger even than Thailand's."

The event's official focus was Smart Vehicle Mobility, a theme adopted in recognition of a number of the key challenges now facing Indonesia's automotive industry. The most compelling of which, of course, has been the recent increase in the country's fuel prices.

While statistics from the Indonesian Automotive Manufacturers Association (Gaikindo) are still testifying to a current increase in domestic sales compared to last year, many car makers and distributors are anticipating a sales slowdown in final months of 2013. For the year overall, sales are expected to have risen by just 10-12%, a drastic fall in the 24.8% climb enjoyed in 2012.

The expected slowdown has been attributed to a number of newly-introduced government initiatives – chief of which has been the sharp increase in the minimum down payment requirements on car purchases introduced in April. The overall weakening of the Rupiah has also taken its toll.

The sales of a number of the premium brands, notably Audi, BMW and Mercedes, are expected to be unaffected by these changes. Explaining this apparent immunity, Herry Noverino, Audi's Marketing and PR Assistant Manager, said: "Our target market is premium customers and an increase in fuel prices or interest rates does not really affect their car-buying decisions."

Despite the controversy surrounding the Low Cost Green Car (LCGC) initiative, with many claiming the move will only add to the country's chronic traffic problems, the show hosted a number of such vehicles. Several manufacturers have, as it was, been driven to the sector following a pledge by the country's President, Susilo Bambang Yudhoyono, to exempt such vehicles from luxury tax requirements.

Taking its cue from the administration, Toyota and its local partner, Astra International, have now introduced their own low-cost and environmentally-friendly vehicles – the Astra Toyota Agya and the Astra Daihatsu Ayla. The two models both qualify for the tax exemption and are priced between Rp99,000,000-120,000,000 (US$8,700-10,500) and Rp76,000,000-107,000,000 (US$6,700-9,400) respectively.

Honda, the Japanese car giant, is now the latest manufacture looking to enter Indonesia's LCGC market. Its debut in the sector is the Brio Satya, currently priced between Rp106,000,000-117,000,000 (US$9,340-10,640). Built from 85% locally-sourced components, the car is being sold on the high fuel efficiency of its 1.2 litre SOHC four-cylinder i-VTEC engine.

While Japanese brands – notably Toyota, Suzuki and Daihatsu – still dominate Indonesia's car market, a number of manufacturers from Korea and the Chinese mainland are now keen to expand their share.

One such company is KIA Indonesia, a joint venture manufacturer partly owned by Korea's Hyundai Group. The company now has high hopes that its new model will make inroads into the country's car markets. Addressing its aspirations, Ridjal Mulyadi, Marketing Communications Manager for KIA Indonesia, said: "Our city car product, KIA Picanto, has been really well-received in Indonesia. As a result, we are confident of achieving some 500 car sales at this event."

KIA is currently the only non-Japanese brand to number among Indonesia's top 10 automotive manufacturers, but is far from content with its position. Mulyadi said: "We see Indonesia as a market with a huge potential. We currently account for about 1% of car sales there, but we are confident that this will continue to grow."

One of the newest arrivals to Indonesia's automotive market is the Zhengzhou Nissan Automobile (ZNA) (http://www.zna.com.co/site/), a joint venture between Nissan and the CITIC Group. ZNA made its debut in the country just five months ago, importing some 50 of its Multi Purpose Vehicles (MPV). To date, just 20 of them have been sold.

Despite this seemingly slow start, ZNA is beginning to attract some attention. Achmad Iskandar, 39, is a regular visitor to the IIMS and is always keen to see what new models are on offer. This year it is an MPV that has caught his eye. Asked just where its appeal lay, he said: "I think it's a really nice model and the price is quite reasonable."

Photo: Toyota's Agya: an LCGC.
Toyota's Agya: an LCGC.
Photo: Mainland interloper: ZNA.
Mainland interloper: ZNA.

While many Indonesian motorists are wary about committing to unfamiliar brands, Iskandar seemed to have no such qualms. He said: "The company has a buy-back program and provides after-sales service, so I am not too worried."

After-sales service and the availability of spare parts are two of the main concerns in the Indonesian car market and they are concerns that ZNA is only too keen to address. U. Syamsudian, the company's Supervisor for Sales and Marketing, said: "Most customers are also worried about the resale value of their cars. As a newcomer, we are trying to address all of these issues and it has become a key part of our marketing strategy."

The event also proved the ideal opportunity for a number of manufacturers to launch new models into the Indonesia market. Daihatsu chose the event for the world premiere of its four concept cars – the UFC-2 ultra-function compact, the Crossover Utility Vehicle, the DR-Estate and the new Compact. Not to be outdone, Renault introduced its Duster sport utility vehicle, while Honda unveiled its first ever entry-level MPV (Multi Purpose Vehicle).

This plethora of new vehicles, however, is not likely to have won the approval of all of the local dignitaries. Jakarta's governor, Joko Widodo – known locally as Jokowi – is said to be no great lover of privately-owned motor vehicles and has long been a champion of promoting the greater uptake of public transport in the city. To this end, he has gone on record as criticising the central government's support for LCGCs, seeing it as counter-productive in terms of his traffic reduction initiatives.

Taking some of these concerns on board, Boediono, the Indonesian Vice President, stressed his commitment to solving the capital's growing traffic during his opening address at the event. Taking less of a hardline than Jokowi, Boedino proposed an Electronic Road Pricing (ERP) system and the improved distribution of automotive products outside of the capital as possible solutions to Jakarta's road congestion.

Emphasising the importance of the sector to the country's emerging economy he said: "The automotive industry is a strategic industry that can support the three main pillars of our national industrialisation. From a government point of view, we are hoping that events like this one will assist industry players in focussing more on strengthening our industrialisation structures."

In line with the Vice President's assessment of the importance of the automotive sector to the Indonesian economy, a number of manufacturers were quick to outline its potential. Show organiser and Toyota President, Darmawan, said: "Indonesia's car market has shown a consistent growth of 25% per annum. In order to preserve our market share, we are now looking at developing a number of our service initiatives."

More than just sales

With the Indonesian domestic consumer economy still underdeveloped compared to many of its neighbours, the country's motor show has become one of the key barometers of growth and sophistication in the country. According to its organisers, ever since its 1986 debut it has functioned as much as an arena for educating consumers and promoting technology sharing as it has a sales hub.

Explaining his company's view of the event, Rouli Sijabat, PR Manager for Toyota Indonesia said: "For us, attending the IIMS is not about reaching a certain number of sales. We use events like this to introduce our latest technology to our customers."

In line with this policy, this year Toyota turned to the event to showcase both its new concept car and its new hybrid car. The hybrid vehicle – the Toyota TS030 – is said to be the first such vehicle to make its mark in the World Endurance Championship.

Sijabat said: "Bringing in cars like these is neither easy nor cheap, but we believe that bringing our technology closer to our customers will help us create a different kind of bond with them."

Thinking along the same lines, Honda also shipped in its NSX sports concept car especially for the event. The vehicle previously played a starring role in the first two Iron Man movies as the car of choice for Tony Stark, the metal-clad superhero's alter ego.

It is an approach that seems to bear some merit among Indonesian consumers, promoting wider awareness of the automotive sector. One returning visitor to the event, 19-year-old Lila, said: "I love seeing the concept cars and the cars that we don't usually see on the road. It really has become the highlight of my conversation with friends throughout the year."

Photo: The automotive sector is a key barometer of Indonesia's consumer market.
The automotive sector is a key barometer of Indonesia's consumer market.

The Indonesia International Motor Show 2013 featured 35 automotive brands and 276 supporting industries. Held in the Jakarta International Expo Kemayoran from 19-29 September, the show attracted more than 380,000 visitors. This represented a 20,000 increase on its 2012 attendance.

Dian Estey, Special Correspondent, Jakarta

Content provided by Picture: HKTDC Research
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