Indonesia tipped as potential largest carmaker in Southeast Asia

Indonesia has the potential to become the biggest carmaker in Southeast Asia within the next five years, the country’s automotive industry association Gaikindo said on Wednesday (Feb 3).

Indonesia can compete, and overtake Thailand’s automotive industry if the government gives the right incentives to boost production, said Gaikindo’s co-chairman Jongkie Sugiarto.

“Indonesia has a good potential in ASEAN. In the coming years, Indonesia is going to be the leader in the automotive industry,” said Mr Jongkie. “It’s really a pity that (companies like) Ford are (pulling) out of Indonesia.”

Ford is the second American carmaker to exit the Indonesian market in the past year, after General Motors stopped its manufacturing operations in 2015. Ford had been struggling to maintain profitability.

However, Mr Jongkie is convinced Ford’s pullout will not affect Indonesia’s automotive industry. Currently, about 1 million cars are for domestic production, but only 0.2 million units are produced for exports.

With Indonesia’s automotive industry having the annual production capacity to build 1.9 million cars, this leaves 0.7 million units in excess capacity. Gaikindo believes the country needs to expand its production base to make the most of this.

“We have to add the production base of MPVs, plus sedans, plus pick-ups, plus SUVs,” said Mr Jongkie.

“How? It’s easy. We have to lower the luxury tax of small sedans, small SUVs, pick-ups from 30 per cent today to 10 per cent. There will be a demand. So, when these models are growing, then the principals will come and say why don’t we produce the cars in the country?”

Gaikindo submitted its proposals to President Joko Widodo in October 2015, and the government is considering changing the tariff regime in the automotive industry.

Analysts believe the government is serious in attracting more foreign manufacturers as it tries to move away from a commodity-based economy.

“Our government’s commitment to increase manufacturing is very strong,” said Myrdal Gunarto, an economist at Maybank Indonesia. “The government has released some stimulus packages that aim to attract foreign investors to come here through deregulations, and to make it easier for foreign companies to invest in Indonesia.”

Gaikindo predicts car sales this year will increase by 5 per cent, in line with the government’s target to achieve 5.5 per cent economic growth in 2016.