The launch of the Asia Passenger Vehicle (APV) in Indonesia marks a new phase of expansion for Suzuki Motor in Asia. Despite a low-key unveiling in July, the new compact minivan is part of an ambitious programme put in place largely in response to the increasingly aggressive product campaign in the region by Toyota and Daihatsu. Tony Pugliese reports.
In particular, the APV is Suzuki’s answer to the Toyota Avanza and Daihatsu Xenia compact MPVs launched in Indonesia earlier this year and which are currently being rolled out across the region.
Like Toyota for the Avanza and Daihatsu for the Xenia, Suzuki has made Indonesia its main regional production base for the APV. It is investing Y11.5bn in refurbishing and expanding its Tambun plant in Bekasi, east of Jakarta, to give the APV line an annual production capacity of 70,000 units on three shifts. The plant has the capacity to assemble a further 80,000 Carry minibuses, SUVs and other Suzuki vehicles. The plant currently operates on two shifts, but Indomobil Suzuki International (ISI) anticipates that a third shift will be needed once the international roll out of the APV gathers pace.
Together with Toyota’s Karawang plant which makes the newly-launched Kijang Innova, the Tambun plant is one of only two vehicle assembly facilities in Indonesia fitted with automated spot welding machines. In both cases, the robots were installed earlier this year in what represents real progress in the internationalisation of a once highly protected and domestically focused industry.
Suzuki, along with Toyota-Daihatsu, Isuzu and Mitsubishi, is already well entrenched in the Indonesian passenger vehicle segment with its Carry minibus and the Escudo SUV. Indonesia has by far the largest market for minibus and MPV-type vehicles in the region, making it a natural choice as a production location of such vehicles. As the Indonesian economy continues to recover from the 1997 crisis, the Japanese carmakers generally have been investing heavily in the country in spite of the recent political uncertainty and terrorist campaigns.
After raising its stake in its Indomobil Suzuki International manufacturing subsidiary to 90% last year, Suzuki Motor has been increasingly willing to make Indonesia one of its key Asian production locations alongside India and China. Also in the last two years, Toyota, Daihatsu and Honda, all have taken majority control of their assembly operations in the country and have expanded production capacity significantly.
Limited domestic appeal for the APV
The APV itself is a boxy, Japanese-style minivan, based on a tweaked Baleno platform. Around 60% of its content is Indonesian, including the gearbox. A further 15-20% comes from other ASEAN countries, according to an ISI spokesperson. The engine itself – a 1.5L petrol unit, comes from Japan but this too is likely to be localised in the near future.
ISI is hoping to sell up to 70,000 Indonesian-made APVs next year both in Indonesia and overseas. Domestically, the company has come out with annual sales projections ranging between 30,000 and 50,000 units. It is also counting on annual CKD and CBU export volumes of around 35,000 units. In the first instance, the company is likely to struggle to meet the lower of these projections, while to meet is export target it is having to cast the net very wide indeed.
In Indonesia, the APV will likely struggle to keep pace with either the Xenia or the Avanza in this newly established compact utility vehicle segment, despite the positive reviews in the local press. Priced at between Rp85-115m ($9,340-12,640), it overlaps entirely with the Toyota Avanza in terms of price. And while it has a bigger engine – 1.5L versus 1.3L – the boxy shape and layout will limit its market appeal. ISI said it has 3,000 outstanding orders for the new vehicle – including 500 it picked up at the Jakarta Motor show this month – equivalent to around one month’s production on the current shift pattern.
By contrast, the waiting list for the Avanza is about four months. In volume terms, the waiting list is only marginally shorter than when it was first launched in January, given the recent increases in production capacity at the Astra Daihatsu Motor plant and the recent introduction of weekend shifts ahead of the peak buying month of Ramadan. Thus, there is little evidence that the APV is attracting buyers that are put off by the long waiting list for the Avanza and this means that the model has missed one of its key marketing objectives.
ISI’s domestic sales projections for the rest of this year for the APV, of 5,000 units, look more realistic. The new model will also attract more people into Suzuki’s showrooms and other Suzuki models will likely benefit from the increase in activity. Industry sources suggest that GM may sell the vehicle locally under the Chevrolet badge, though this is unlikely to add significantly to total volume sales.
APV to be widely exported from Indonesia
Suzuki Motor Company in Japan has handed ISI a long list of overseas markets for the APV, both in completely built up (CBU) format and completely knocked down (CKD) kits. The list needs to be long if it is to meet its export objectives. Nevertheless, Suzuki’s exports from Indonesia have been increasing significantly in recent years. In 2002 it exported 4,272 Karimum passenger vehicles in CKD form to Pakistan, Vietnam and Myanmar. This increased to 6,840 units in 2003 as well as a further 216 Vitara SUVs. With significant investment having been poured into tooling up the APV line, the Tambun plant is fast becoming an important international production base.
The APV will be exported in CBU form to a wide number of Middle Eastern markets from next year, including the Gulf States, Saudi Arabia and Jordan. It will also be exported in limited volumes to the Caribbean and Latin America, both in CKD and CBU form. Closer to home, CBUs will be exported to Thailand, Brunei, Singapore, Australia and New Zealand, and possibly also to the Philippines. Malaysia, Taiwan, Vietnam and Mynmar will get the vehicle in CKD form. ISI is hoping that exports will jump to 30-35,000 units next year.
Absent from the export list was Pakistan, India and China, which are likely to have separate production plans for this vehicle. In India, which is by far Suzuki’s largest market in after Japan, the company is investing in a second vehicle assembly plant which will likely make the APV. The plant is due to start production in early 2007 and will have the capacity to produce 250,000 units at full swing. Details of the investment have not been made available, but the amount is likely to be substantial given that it will be a full-scale plant.
Suzuki Motor took majority control of Maruti Udyog Ltd, the local manufacturing company, following a rights issue in which the Indian government declined to participate. Suzuki’s stake in MU increased to 54.2% as a result. Last year, a total of around 472,000 Suzuki vehicles were produced in India and domestic sales amounted to 392,100 units. Maruti Udyog has become a significant exporter of sub-compact cars, with most volumes going to Europe.
The new plant will be a new joint venture between Suzuki Motor of Japan and MU, to be called Suzuki Maruti India Ltd. This will give Suzuki Motor greater control of the new facility than it has of MU.
Separately, Suzuki Motor is planning to build a new plant in Harvana State, Gurgaon, with a capacity to assemble 100,000 diesel engines per year from the end of 2006. Given the subsidies on diesel fuel, the ability to supply diesel-powered vehicles will be critical if Suzuki is to compete more effectively in the larger car and utility vehicle segments. A total of Y10bn has been earmarked to set up this operation, which will be called Suzuki Engineering India Ltd. Suzuki recently entered into diesel engine licensing agreements with Adam Opel of Germany and Fiat Auto of Italy.
In China, Suzuki Motor has two production joint ventures in the passenger vehicle sector – Jiangxi Changhe Suzuki Automobile Co Ltd and Chongqing Changan Suzuki Automobile Co Ltd. These companies mainly produce mini- and sub-compact vehicles, for which Suzuki is China’s dominant manufacturer. Suzuki-based vehicle sales in China amounted to an estimated 260,000 units last year and new capacity is being added.
Jiangxi Change Suzuki is due to start production of the Wagon R, and the APV is likely to follow. Also, a new small engine plant is being built, with a capacity to make 300,000 engines per year at a cost of $200m. The plant is scheduled to be completed in 2005.
Estimated Suzuki Motor vehicle sales in Asia, 2003
Sources: industry sources.