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Indonesia has the opportunity to become an automotive production hub for the ASEAN and gradually replace Thailand as a car production base, according to the Ipsos Business Consulting Firm.
“This is evident from the output trend of vehicle production, policies, and infrastructure, which continue to undergo improvements followed by increasing production capacity, domestic consumption, and export volumes,” Marcus Scherer, head of the Global Automotive Sector of Ipsos Business Consulting, stated here on Wednesday.
Marcus hoped that the policy makers and stakeholders as well as automotive producers would consider this aspect as it will have a major impact on the supplies of automotive spare parts in the future.
So far, Thailand has been the largest automotive producer in Southeast Asia, with an annual production of some two million cars as compared to Indonesia, which produced only some 1.1 million units in 2015.
Indonesia has not yet been able to be at par with Thailand in developing its export market. It exported only some 23 percent of its domestic production in 2015, while Thailand was able to export some 55 percent of its domestic production.
In 2015, the production gap between the two countries was some 810 thousand units, but in 2020, the gap is expected to narrow to 464 thousand units only.
In order to take over Thailands position as the number one car production center in the ASEAN, Indonesia should be able to overcome the production gap through various combinations of solutions, Marcus stressed.
The solutions should encompass increasing the production capacity of factories. In 2015, Indonesia had a production capacity of two million units of which only some 62 percent was utilized. Therefore, Indonesia should increase its follow-up investment to nearly US$2.6 billion for constructing new factories or for increasing the production capacity of the existing factories based on the assumption that utilization would remain unchanged.
The latest Ipsos report highlighted the fact that although the export performance this time had not been significant, yet Indonesia had high domestic growth potential. This could encourage investors to harbor expectations for solid sales growth once they are able to gain access to the right markets.
Douglas Cassidy, the Ipsos Business Consulting Indonesia director, stated that the global automotive players who had not yet had significant production bases in Indonesia would question whether they have been placed in the correct position to obtain a market share in the ASEAN whose total population reaches 600 million.
Moreover, these players would also question whether they could maintain the market segment they already owned as other companies will surely also expand their operations in Indonesia and Asia, in general.
Chukiat Wongtaveerat, a senior consultant manager at Ipsos Bangkok, concurred with the analysis of Cassidy on the current market situation but opined that Thailand was still able to safeguard its automotive industries.
Wongtaveerat noted that several leading automotive producers had announced strategic steps to pull out of the Indonesian market, particularly Ford Motor Company and General Motors.
He remarked that other leading players such as Volkswagen, Hyundai, and Mazda were not yet able to communicate their clear strategies to safeguard their strong and profitable market shares in the two countries, particularly in Indonesia, which needed consistent regulations and sustainable and supporting automotive infrastructure development in the face of the current downward sales trend.
He pointed out that the business climate in Indonesia had not yet yielded significant benefits to the automotive industries. Based on the World Banks ease of doing business index, Indonesia is ranked 109 among 198 countries, while Thailand comes 49th on the list.
However, the Indonesian government has set a target to rise in the ranking to reach the 40th position in 2018. Such an improvement, if it has to be achieved, clearly needs constant focus of the policy makers.
Scherer noted that the current conditions in Indonesia were showing a positive trend, such as the easing of regulations on foreign ownership through its revised negative investment list and simplified licensing procedures.
