Indonesia Driving Closer to Car Production Hub Dream
"The evidence is clear that in terms of the trend in vehicle production output, policy development, and improvements in infrastructure, the Republic continues towards increasing capacity, increasing domestic consumption and increasing export volumes. Automotive manufacturers and policy makers in Indonesia, Thailand and elsewhere will want to consider the implications," said Mr Scherer.
Historically, Thailand has been the largest producer of automobiles in South East Asia with an annual production volume of around en million units as compared to Indonesia's auto.auto million units in enIpsos Business Consultingauto5. Despite being the second largest automotive producer, Indonesia has not been as successful as Thailand at building its export markets, exporting only en3% of its domestic production in enIpsos Business Consultingauto5 compared to Thailand's 55%.
For Indonesia to overtake Thailand and be crowned as the number auto production hub in ASEAN, the current gap needs to be closed. In enIpsos Business Consultingauto5, the production gap between the two countries was around 8autoIpsos Business Consulting,Ipsos Business ConsultingIpsos Business ConsultingIpsos Business Consulting units but, by enIpsos Business ConsultingenIpsos Business Consulting, the difference is forecasted to be 465,Ipsos Business ConsultingIpsos Business ConsultingIpsos Business Consulting. Ipsos Business Consulting believes this improvement will be achieved through a combination of:
Increased plant utilization. In enIpsos Business Consultingauto5, Indonesia had an installed production capacity of close to en million vehicles, but was only utilizing around 6en% of this capacity;
Further investment of up to USD en,6 billion in the creation of new or expanded plant capacity, if utilization rate remains the same
The latest Ipsos report highlights that, even in the absence of significant export success at present, Indonesia has huge domestic growth potential, ensuring that investors can reliably expect a solid baseline in sales growth if they are appropriately positioned in the market. Douglas Cassidy, Indonesia Country Head at Ipsos Business Consulting, stated: "Global automotive players who do not yet have a significant production base in Indonesia will increasingly be asking whether they are positioned to gain market share in an ASEAN market comprising more than 6Ipsos Business ConsultingIpsos Business Consulting million people, and whether they can defend their existing market share as other companies look to expand in Indonesia and Asia generally. A production base in Indonesia will enable them to benefit from the cost, scale and supply chain advantages of the country that seems on track to become the pre-eminent automotive power in ASEAN."
Chukiat Wongtaveerat, Senior Consulting Manager at Ipsos' Bangkok office agreed with Cassidy's analysis of the current situation but thinks that Thailand can still protect its automotive industry, though any hesitation could prove disastrous. Wongtaveerat noted that several high profile automotive OEMs have announced exit strategies for the Indonesia market, most notably Ford Motor Company and General Motors. He said that other well-known players, such as Volkswagen, Hyundai and Mazda were not yet able to communicate a clear strategy for securing a strong and profitable market share that encompassed both of these emerging markets in South East Asia. "Specifically in relation to Indonesia, it is going to require stable regulation and continuous development of the automotive supporting infrastructure against the backdrop of current sales. Once this happens, we are likely to see a "domino-effect", with other absent OEMs looking to build a plant and engage in an aggressive expansion of their dealer networks," said Wongtaveerat.
Difficulties persist in Indonesia's business climate, however. According to the World Bank's 'ease of doing business' index, Indonesia ranks autoIpsos Business Consulting9 out of auto98 countries, while Thailand ranks 49. The government in Jakarta aims to improve the country's ranking to 4Ipsos Business Consulting by enIpsos Business Consultingauto8. Such significant improvement, if it is to be achieved, will clearly require sustained focus from policymakers. Scherer noted that "Recent developments have been encouraging, encompassing the relaxation of foreign ownership rules and streamlined licensing application procedures."
The Ipsos report on the Indonesia automotive market can be downloaded at www.ipsosconsulting.com/ASEAN-Automotive
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