Among the ASEAN countries, Thailand has the most developed auto industry, but Indonesias market has much growth potential and its government does not want to rely on Thai imports

Among the ASEAN countries, Thailand has the most developed auto industry, but Indonesia's market has much growth potential and its government does not want to rely on Thai imports

Indonesia's government announced broad plans for a small-car incentive programme in 2010. Progress has been slow, but a number of manufacturers are now participating in the Indonesian scheme. Tony Pugliese reviews progress to date. 

Suzuki Motor this month confirmed plans to participate in Indonesia’s Low Cost Green Car (LCGC) incentive programme and these will be integrated into its JPY 60 billion (USD 610 million) new car plant investment in Bekasi, just east of the country’s capital city Jakarta. 

The Indonesian government originally announced broad plans for the LCGC small-car incentive programme in 2010, along with a package of investment incentives including five-year tax holidays (which are available to investments of over USD 100 million from a broad spectrum of industries), as a means of competing with the equivalent Thai “eco-car” programme.

What the government wanted to avoid most of all is for the country to become even more dependent on imports of passenger cars from Thailand, especially with its domestic vehicle market set to overtake that of Thailand in the near future.

Currently, most sub-compact, compact and medium passenger cars and pickup trucks sold in Indonesia are source as completely-built-up (CBU) units from its South-east Asian neighbour.

The main LCGC specifications are similar to the Thai Eco-Car: fuel consumption of 20km/litre; a petrol engine capacity of between 980-1200cc and up to 1500cc for diesel cars. These cars are to enjoy luxury taxes discounts of up to 75% compared with equivalent conventional models. 

Additional requirements for the LCGCs include that they must run on higher octane fuels than the locally subsidised Premium and Solar fuel, such as RON92 gasoline or CN 51 diesel, and must have “premium” features such as airbags. The off-road sale price should be capped at IDR 95 million.

Suzuki is developing a car based on its Japanese Wagon R “kei car”, but will substitute the 660cc engine with a more powerful 1,000cc engine. Suzuki expects to complete construction of its new plant in mid-2014.

Daihatsu and Toyota have been onboard the LCGC programme since its inception. The two companies launched the Daihatsu Ayla and the Toyota Agya - their respective five-seater LCGCs - at last year’s Jakarta Motor Show.

Astra Daihatsu Motor completed construction of a new purpose-built, 130,000-unit/year plant in Karawang – some 70km east of Jakarta - at the end of 2012, designed to produce both the Agya and Ayla models. 

The plant cost IDR 2.1 trillion (US$220m at the time) to build and features full stamping, welding and painting facilities as well as a 1km test track. The two companies also completed their respective engine assembly plants in the third quarter of 2013.

While Toyota and Daihatsu dealers have been taking orders for the LCGCs some time, they are able to offer only tentative prices and no close approximations of the delivery dates.

A tentative on-the-road launch price of around IDR 70 million (USD 6,400) has been set for the manual version of the Daihatsu Ayla; and IDR 80 million for the Toyota Agya equivalent. This is a price level that would ensure substantial local demand. 

All models will be fitted with 1,000cc engines and automatic transmission variants will cost around IDR 100 million.

Suzuki is expected to place its LCGC at the lower end of the Toyota-Daihatsu price range, which would allow it to compete effectively in what is expected to be a significant new market segment. 

Honda has also announced tentative plans to join the programme, which will likely be accommodated in its USD 329 million, 200,000-unit/year plant currently being built also in Karawang. Nissan is also indicated that it may join the programme.

While low-cost cars in this price range have been on the market for many years, including the Chery QQ which is currently priced at IDR 90-95 million, the uptake has been very poor. Only a heavy-weight brand such as Toyota is capable of establishing a veritable new market segment in a South-east Asian market such as Indonesia.

So far, Astra Daihatsu has been able to produce only its existing compact MPVs at the new plant since construction was completed at the end of 2012. According to Asia consulting firm, the government has yet to give its final approval for Daihatsu’s LCGC and is still working out some technical issues.

Luckily for Daihatsu, demand for the best-selling Toyota Avanza and Daihatsu Xenia MPVs models has continued to rise to record levels this year and some of the new capacity has been put to good use.

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