There is strong evidence Indonesia will eventually replace Thailand as the main automotive production hub in the Association of Southeast Asian Nations (ASEAN), according to Ipsos Business Consulting.
This could have major implications for automotive manufacturers and suppliers as well as policy planners in both countries.
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"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, domestic consumption and export volumes. Automotive manufacturers and policy makers in Indonesia, Thailand and elsewhere will want to consider the implications," Ipsos said.
Historically, Thailand has been the largest producer of automobiles in south east Asia with an annual production volume of around 2m units as compared to Indonesia's 1.1m in 2015. However, despite being the second largest automotive producer, Indonesia has not been as successful as Thailand at building its export markets, exporting only 23% of its domestic production in 2015 compared to Thailand's 55%.
In 2015, the production gap between the two countries was around 810,000 units but, by 2020, the difference is forecast to be 465,000. In a report, Ipsos found the gap can be closed through measures such as increased plant utilisation. In 2015, Indonesia had an installed production capacity of close to 2m vehicles, but was only utilising around 62% of this capacity. Up to US$2.6bn could be spent on new or expanded plant capacity, if utilisation rate remains the same.
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.
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By GlobalData"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 600m 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, Ipsos said.
Thailand can still protect its automotive industry but any hesitation could prove disastrous. Several high profile automotive original equipment manufacturers (OEMs) have announced exit strategies for Indonesia, most notably Ford and General Motors. 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," Ipsos said.
Difficulties persist in Indonesia's business climate, however. According to the World Bank's 'ease of doing business' index, Indonesia ranks 109 out of 198 countries while Thailand ranks 49. The government in Jakarta aims to improve the country's ranking to 40 by 2018. Such significant improvement, if it is to be achieved, will clearly require sustained focus from policymakers.
ASEAN vehicle sales fall 4% in 2015
