The Indonesian vehicle market has bounced back sharply from the economic devastation that was triggered by the 1997-98 regional financial crisis. Annual sales volumes rose to over 80% of pre-crisis levels in 2000 after two years of virtual standstill - which is faster than some neighbouring countries, including Thailand. But two years on, the vehicle market is struggling to make further headway and there appears to be little that could trigger a new spurt of growth in the short term. Tony Pugliese's comprehensive review includes model-level market data.

Despite the more liberal regulatory environment governing the economy and the automotive sector, the recent progress by the government in re-privatising assets seized following the bank liquidity crisis, and greater monetary stability, the country is struggling to work through some of more deep-rooted legacies of the economic crisis.

The moderate consumer-led economic recovery that has taken place appears to be running out of steam, while export markets remain depressed. Foreign direct investment (FDI) continues to plummet in favour of competitor countries such as Vietnam and China, and rising unemployment shows no signs of abating. Interest rates are lower than they've been in a long time, at 13%, which favours consumption and indeed car-buying. But the recent GDP growth rates of 4-5% have not been enough to generate significant new employment, and with fewer and fewer new potential buyers coming into the market, new product is needed to stimulate sales. Furthermore, GDP growth is unlikely to exceed 4% in 2003.

Social unrest and Bali bombing not helping
The lack of legal and corporate transparency in Indonesia, regional social unrest and the increasing security problems are clearly not helping the country to develop new industries. The government also does not appear to have an effective policy attract new investment. Even in the oil sector, Indonesia is unable to meet its OPEC export quota. The FDI that is taking place globally is being prioritised, with Indonesia very low down on companies' lists.

The industry is putting on a brave face following the latest setback - the devastating Bali bombing which has claimed almost 200 lives, but it is holding its breath nevertheless. Mr Soeseno, general secretary of the vehicle manufacturers association Gaikindo, does not expect a significant backlash on vehicle sales, but it is still too early to quantify the full effects as orders are placed months in advance. The tourism industry will suffer greatly in the short term, and consumer confidence will continue to weaken. A further major terrorism act could be the last straw. But even without this, the vehicle market is unlikely to show any growth until 2004 at the earliest.

Regulatory environment - some progress on liberalisation
Among the main areas of regulatory progress in the automotive sector that have been made since the ousting of president Suharto in 1998 are the elimination of foreign investment barriers and a reduction in import tariffs. Trade with ASEAN member states participating in the ASEAN Free Trade Agreement, such as Thailand and the Philippines, has been liberalised - with tariff barriers on all ASEAN-made automotive products now capped at 5%. Passenger car imports from other countries remain subject to tariffs of between 65-80%, depending on engine size, though SUVs and Category 1 light commercial vehicles and utility vehicles are subject to import tariffs of 45%. CBU imports are also subject to luxury taxes that can be as high as 75%.

Overall, the Indonesian vehicle market still favours locally assembled vehicles, even though tariffs are also imposed on CKD imports. Apart from the most expensive passenger cars, where price is less of an issue, most companies have managed to register their imported vehicles as Category 1 commercial vehicles. These are predominantly what we would call passenger cars in the west, such as the Kia Visto and Mercedes-Benz A-class, and MPV models such as the Kia Carnival, Hyundai Matrix and Trajet. As such, they are subject to lower taxes and are able to compete more effectively with locally-made products.

The vehicle market
After falling to levels not seen in decades, the Indonesian vehicle market has staged a remarkable comeback given the economic problems and political uncertainty that still persist. Vehicle manufacturers have been extremely active in the last few years in releasing new models designed to stimulate a new wave of vehicle purchasing, and all the important model ranges have been replaced in the last few years; new market sub-segments have also been generated. But some pressure on the local industry has come to bear from the import sector, particularly from the Korean manufacturers, who are becoming increasingly successful in undermining the Japanese dominance in some market segments and even in setting new standards in vehicle equipment levels. Until Honda launched the Stream at the beginning of this year, Hyundai and Kia were the dominant force in the newly established MPV segment.

Vehicle sales in Indonesia by type, 1997-02
1997
1998
1999
2000
2001
2002*
Passenger Cars
73,510
12,168
11,437
55,061
33,387
21,161
Commercial vehicles
313,245
46,438
83,687
262,701
260,880
218,469
Total vehicles
386,755
58,606
95,124
317,762
294,267
239,630
Sources: Industry sources
*January -September

The country's vehicle market consists predominantly of commercial vehicles, accounting for over 90% of the market, although a good part of these are private passenger vehicles. The country is home to the 'Asian Utility Vehicles', such as the Toyota Kijang and the Isuzu Panther, which together account for just under 30% of overall vehicle sales. Other major market segments are minibuses and pickup derivatives, such as the Suzuki Carry range - priced at around US$6,000 - which is often used for both private and commercial purposes.

Sales of light and medium commercial vehicles (up to 10-tons GVW) are holding up well, driven primarily by the as yet resilient domestic economy, and consumer activity in particular, and are likely to see further moderate growth in the short term. The utility vehicle and SUV segments are showing signs of softening however, as they continue to come under pressure from significant range of new MPVs that are now available. On the whole, local assemblers have been slow to respond to this challenge. There are now over 20 mini, compact and full-size MPVs available on the market at present, which are diluting both the passenger car and utility vehicle segments. Among the best-selling models are the locally-assembled Honda Steam, Suzuki Karimum (Wagon R) and Hyundai Atoz, and imported models such as the Kia Carens and the Hyundai Matrix.

Despite the rising competition, Toyota Motor has managed to secure leadership of the passenger car market once again - now that the effects of the controversial Kia-Timor project have been worked through. Its main model is the Soluna, which is used as both a taxi and as a private vehicle, though volumes have dropped sharply after the initial launch success. The car is likely to be replaced in 2004 by a new model imported from Thailand. The Corolla Altis was launched late last year, and has a solid position at the top of the C segment. Sales of the Camry, launched in 2000, have been more disappointing, however. Toyota enjoys a very strong image of quality and value-for-money in the aftermarket sector, and is generally seen as the industry benchmark in this market.

Suzuki relies on the Baleno model to secure its second place in the passenger car market, and sales have been dropping sharply as with the rest of the market players. The Karimum has allowed it to strengthen its position in the commercial vehicle market, as has its new range of Carry minibuses and pickup trucks. Honda, too, has seen demand for its entry-level City car wither away, though it is enjoying success with the Stream and to a lesser extent the CR-V.

Indonesian vehicle sales by brand, 1999-02
 
1999
2000
2001
2002*
Passenger cars
       
Toyota
1,509
13,044
12,503
8,416
Suzuki
320
7,658
4,558
2,673
Honda
1,292
7,461
6,656
2,261
Hyundai
1,001
2,638
2,959
2,235
BMW
525
2,403
2,830
1,561
Mercedes
680
838
1,692
1,534
Mitsubishi
1,274
10,905
1,338
765
Peugeot
326
285
350
559
Timor
3,087
8,530
198
316
Volvo
74
161
131
199
Others
1,349
1,138
172
642
Total Passenger Cars
11,437
55,061
33,387
21,161
Commercial Vehicles
Mitsubishi
23,160
62,125
61,346
56,773
Toyota
25,098
77,091
68,005
55,300
Suzuki
11,083
38,411
48,625
44,840
Isuzu
9,636
29,012
31,244
20,519
Daihatsu
9,822
28,427
20,552
15,721
Honda
0
1,234
4,854
6,601
Hyundai
0
4,470
6,068
4,291
Kia
0
8,822
6,422
4,092
Hino
239
714
2,771
2,562
Nissan Motor
938
2,711
2,918
2,264
Opel/Chevrolet
1,808
5,376
2,359
1,653
Nissan Diesel
438
983
1,132
840
Others
1,465
3,323
4,584
3,013
Total commercial vehicles
83,687
262,701
260,880
218,469
Sources: industry sources
*January-September

The commercial vehicle market in Indonesia is very heavily dominated by Japanese manufacturers, although both Hyundai and Kia are showing an increasing interest in the sector. Both have launched light trucks and are expected to expand their respective ranges from next year. Mitsubishi has by far the broadest range of commercial vehicles, and dominates the market as a result. It has a presence in all weight categories and dominates the light and medium truck sectors. The six-wheel Canter FE349 is the fourth-best selling model range in the market so far this year, with Isuzu's Elf range struggling to keep up. This contrasts with Mitsubishi's fast diminishing presence in the passenger car sector, were new product initiatives have been slow in coming.

Toyota's strength is primarily in the best-selling Kijang range, which is sold both as a pickup and as a passenger vehicle. The Dyna range was replaced in the last two months, which it now shares with Hino, so additional strength is likely to come from this. Sales of the Kijang have softened over the last 18 months, in line with a general slowdown in demand in this segment as the MPV segment took off in 2000, and it will not be until mid-2004 that we will see the Hilux-based replacement on the streets. Similarly, the Daihatsu Taruna (based on the Terios) has lost its sparkle after its initial success.

Sales of the Isuzu Panther have also slowed since the latest model was introduced in 2000. Some sales erosion has come from the launch by Toyota of a larger diesel engine in the Kijang last year, but overall it has to contend with competition from more modern products. Suzuki holds a strong niche in the small minibus and pickup market - in an extremely tough price segment. The new Carry range will help cement its dominant position in this segment, with Daihatsu forced to follow its lead.

Over the last year, 1-ton pickup trucks have begun to make their way into the Indonesian market, with the Toyota Hilux and the Ford Ranger in particular doing well. Mitsubishi also now imports the L200. These vehicles are used mainly for private purposes, as they are much more expensive than the pickups available locally. This is likely to continue, with local models such as the Panther and Kijang pickups remaining in production in the foreseeable future.

Top selling models in Indonesia and sales volumes (2000-02)
2000 2001 2002 (1-9)
Passenger Cars
Toyota Soluna 9,418 7,545 4,834
Honda Stream* 0 0 3,832
Suzuki Karimum (Wagon R) 5,750 3,213 3,483
Kia Visto* 1,342 3,017 2,820
Toyota Corolla 2,928 3,865 2,810
Suzuki Baleno 7,658 4,558 2,673
Hyundai Verna 0 1,049 2,223
Hyundai Atoz* 3,064 3,730 2,143
Commercial vehicles
Toyota Kijang minivan/pickup 71,492 61,734 49,687
Suzuki Futura/Carry minibus/pickup 25,781 39,101 37,152
Isuzu Panther minivan/pick-up 25,505 26,634 16,186
Mitsubishi Canter FE349 9,056 14,398 12,366
Mitsubishi T-120 SS minibus/pickup 6,915 10,417 11,609
Mitsubishi L300 minibus/pickup 13,732 16,381 11,531
Daihatsu Zebra/Espass minibus/pickup 7,168 8,742 7,951
Mitsubishi Canter FE304 5,531 3,780 5,668
Sources: industry sources
* classed as Category 1 commercial vehicles

The heavy truck industry is fast disappearing in Indonesia, after the government lifted a ban on used imports in 2001. The lifting of the ban was mainly targeted at the over 24 ton market, to help stimulate industrial and export activity by allowing fleet operators access to lower the cost replacements. Most of the imports come from Japan, and in general terms cost around 40% of the equivalent new price. In reality, however, other categories of used medium and heavy trucks are being imported, putting additional pressure on the local assembly industry. Some in the industry estimate that around 5,000 used trucks were imported between January and August of this year, and there is little sign that the regulations will be tightened anytime soon.

Similar measures are under consideration for the public transport sector as the Jakarta City government studies its options in replacing the city's decrepit public bus fleet. It is estimated that around 6,000 buses would be required over the next few years. These, too, would come from Japan and are expected to be around 10 years old.

The Industry
The Indonesian vehicle industry emerged heavily indebted from the 1997-98 Asian financial crisis. Many companies were forced to pledge assets and shares to the Indonesian Bank Restructuring Agency, others were forced to find other means of refinancing to stave off bankruptcy. Both foreign and domestic debt repayments have been a heavy drain on balance sheets since the financial crisis, and even the strongest - Astra International, is still struggling to reschedule bonds and other loans. The volatile rupiah has exasperated this situation, and has forced companies to hedge foreign exchange, often wrongly.

The interests of the foreign manufacturers and their local partners are also beginning to diverge, with many Japanese manufacturers keen to step up regional industrial integration now that AFTA is starting to take effect. The combination of debt and industry regionalisation is driving many local companies to relinquish majority holdings in their vehicle manufacturing operations and concentrate on downstream activities such as distribution and retail.

Astra International, which through the Isuzu, Toyota, Daihatsu, Peugeot and BMW brands, controls around 60% of the local vehicle market, is doing just that. In August, it reduced its 50% holding in Daihatsu-Astra Motor, the vehicle assembly operations, to 32% by abstaining from a Rp427.5bn recapitalisation. Daihatsu will invest the proceeds in introducing products that can be sold regionally, and is likely to step up collaboration with Toyota in the compact utility vehicle market. The company will focus increasingly on export markets such as Thailand, Malaysia and the Philippines.

Astra International has also admitted that it is in talks to sell its majority holding in Toyota-Astra, freeing Toyota Motor to implement a more regionalised strategy involving importing passenger cars from Thailand and concentrating on utility vehicles and SUVs in Indonesia. Astra's president, Mr Budi Setiadharma, has said he is looking to finalise a deal with Toyota Motor by the end of the year, or early in 2003, whereby the Japanese car company would gain a 90% stake in the manufacturing unit.

Astra's relationship with Peugeot, being a much smaller contract assembly operation, is likely to continue as it is, and similarly with BMW. With Isuzu Motor going through hard times itself, little change is expected in its relationship with Astra International in the short term.

Indomobil, controlled by the Salim Group, has stated in the past that it wants to exit vehicle manufacturing and concentrate on distribution. The only exception would be Suzuki, which is doing extremely well in this market at present. Given the number of brands available, including Audi, Mazda, Nissan, Volvo and Hino, Indomobil's market presence is small outside its relationship with Suzuki. With little else in the ASEAN, Suzuki's regional home base is likely to remain in Indonesia. The company is increasingly targeting export markets in the region and new products are on their way, including a compact utility vehicle (Asia Vehicle Project) scheduled to go into production 2004 to replace the Karimum (Wagon R).

Honda Motor took control of its vehicle manufacturing operations a year or so ago, and is building a new plant that will supply the region with recreation vehicles, including the CR-V and possibly the Stream. Passenger cars will be imported from Thailand when the current models are phased out in 2004 and the existing plant will be closed.

Mitsubishi Motors, through its relationship with Krama Yudha Tiga Berlian Motors, is doing well in the Indonesian truck sector, but its presence in the car sector is poor, and getting worse. It remains to be seen for how long passenger cars will be assembled in Indonesia, but the focus is likely to switch to trucks and utility vehicles, leaving Thailand to supply cars and the L200 pickup truck. Eventually, the truck operations may develop a relationship with Mercedes-Benz, though there is no sign of this happening at the moment.

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