Automotive industry 2010 - March2010 page1

INDONESIAN COMMERCIAL NEWSLETTER

March 2010

DEVELOPMENT OF AUTOMOTIVE INDUSTRY IN INDONESIA

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Backgrounds

The impact of the global financial crisis that struck in 2008 has affected the performance of the country's automotive industry especially in 2009. Based on a report from the Association of Indonesian Motor Vehicle Industries (Gaikindo) car production and sales in 2009 dropped form the previous year. The production shrank to 464,815 units in 2009 from 600,628 units in 2008 or a decline of 22.6%.

Meanwhile, sales fell 19.9% from 603,774 units in 2008 to 483,548 units in 2009 although exceeding the target set by Gaikindo of 450,000 units. Sales in 2008 were the highest in five years. The decline followed the falling value of the rupiah that resulted in an increase in prices. The price hikes forced consumers to postpone plan to purchase new cars.

In addition, high interest rate set by banks and financing firms as a result of the global financial woes discouraged people from buying new cars. However, sales of some major brands like Toyota, Daihatsu and Mitsubishi grew in 2009.

Meanwhile, exports also dropped contributing to the decline in total sales of cars in 2009. Exports of cars in completely built-up (CBU) form totaled 56,669 units in 2009 or down 43.8% from 100,982 units in the previous year. Among the sole agents and car makers succeeded in exporting cars are PT. Astra Daihatsu Motor (ADM). The assembler for Daihatsu cars exported 31,450 units of cars in 2009. ADM's main export products are Gran Max and Terios which were exported to Japan, South Africa and Middle East.

Car sales on the domestic market are dominated still by Multi Purpose Vehicle (MPV). In this segment, Toyota's main products Avanza and Inova led in market share putting competitors behind like Xenia of Daihatsu and APV of Suzuki.

In 2010, the car market began to revive to follow the world's economic trend which is heading toward recovery. The country's auto industry, however, will face new challenge in 2010 with the implementation of the Asean China Free Trade Area (ACFTA), which became effect on 1 January 2010. It is feared that Chinese car makers would be more aggressive in their penetration of the domestic market. A number of Chinese car makers already have their agents importing cars from that country in completely knocked down (CKD) form and built production facilities in the country.

Structure of Motor Vehicle Industry

Characteristics of Motor Vehicle Industry in Indonesia

Motor vehicle industry began to grow since the operation of brand holding sole agents (ATPM) early the 1970s' under a decision of the industry minister No. 295/1982 and No. 428/1987. ATPMs were licensed to assemble, produce and distribute their products in Indonesia.

ATPM operates as sole agents selling cars in the country and as car makers.

In the beginning the government of Indonesia hoped that ATPM would become the embryo for auto industry through transfer of technology to produce cars with high local content.

However, after 30 years, there was no significant progress made toward developing the assembling industry to manufacturing industry with high dependence on imports for components. As a result the prices of cars remain high.

In 1999, the government's deregulation measure killed the idea of developing full manufacturing industry in the automotive sector. The policy allowed import of cars in CBU form. The role of ATPM became insignificant as non ATPM also were allowed to import any brand of cars .

Foreign principals, therefore, decided to take over the production operations of their car products allowing the ATPM only to serve as the distributors.

Toyota Motor Corp. took over the manufacturing division of PT. Toyota Astra Motor (TAM) and made TAM as a distributor of Toyota cars in 2003. The manufacturing sector is operated by PT. Toyota Manufacturing Indonesia (TMMIN), which is 95% owned by Toyota Motor Corp.

Meanwhile, Suzuki Motor Corporation took over control of the manufacturing operation of PT Indomobil Suzuki International and increased its share to 90% from 40% earlier. The remaining 10% is held by Indomobil Sukses International. Distribution of its cars is handled by PT Indomobil Niaga International

Brand holding sole agents (ATPM)

Astra and Indomobil are two largest groups of automotive companies in Indonesia cooperating with a number of foreign principals and serve as ATPM selling cars in Indonesia.

Astra is agent for Asian and European cars including Toyota, Daihatsu, Isuzu, Nissan Diesel and Peugeot. Indomobil Group is sole agent for Suzuki, Volvo, Audi, Nissan, Ssangyong, Mazda, Hino, Renault and VW Caravelle. There are also other smaller ATPM to operate as agents for a number of brands like PT Garuda Mataram Motor ATPM for Audi and VW Caravelle, PT Nasional Motor Company for Mazda and Hino ; PT Daimler Chrysler Indonesia for Mercedes, Chrysler and Jeep, and PT Grandauto Dinamika for Bentley, Daimler, Jaguar and Roll Royce.

Sales of VW Caravelle, product of Volkswagen, is handled by PT Garuda Mataram Motor instead of PT Car & Cars Indonesia, which is the ATPM for Volkswagen in Indonesia as it was already registered by PT Garuda Mataram Motor when it was first imported to the country for use in the APEX summit in 1992. Currently PT Car & Cars Indonesia is agent for only Volkswagen passenger cars/sedans.

Automotive products in Indonesia are divided into two categories passenger cars and commercial cars. Passenger cars include sedans, MPV 4x2 and SUV 4x4 that consist of a number of types by engine capacity.

Commercial cars include Bus, Pick Up/Truck and Double Cabin 4x2/4x4 which consist a number of types by gross vehicle weight.

Production Capacity

There are still a number of ATPMs operating both as a producer and distributor, but other operate only as distributors as manufacturing divisions have been taken over by principals such as in the case of PT Toyota Astra Motor (TAM). Now TAM operates only as a distributor. Its manufacturing facility was already taken over in July 2003, by PT Toyota Motor Manufacturing Indonesia (TMMIN), which is 95% owned by Toyota Motor Corporation and 5% by PT Astra Internasional.

Suzuki Motor Corporation has also increased its control of PT Indomobil Suzuki International as the ATPM for Suzuki in Indonesia. PT Indomobil Suzuki International now operates only its manufacturing facility and sales or distribution is handled by PT Indomobil Niaga International as a sole distributor.

A number of other ATPM have no assembling plant or manufacturing facility such as PT Tjahja Sakti Motor as the agent for BMW cars, PT Astra France Motor agent for Peugeot, PT Pantja Motor agent for Isuzu cars, etc. Assembling of their cars is handled by other companies such as PT Gaya Motor, which is not an ATPM or other ATPM such as in the case of Ssangyong, the assembling of which is handled by PT Nissan Motor Indonesia. which belongs to the same group, the Indomobil Group.

Toyota Manufacturing Indonesia (TMMIN) has the largest production capacity among the car makers in the country. It has an annual production capacity of 170,000 units per year.

Meanwhile, Mitsubishi car maker the Krama Judha Group , which earlier had the second largest capacity with two assembling plants - PT Krama Yudha Ratu Motors for commercial cars and PT Krama Yudha Kesuma Motors for passenger cars - stopped the operation of PT Krama Yudha Kesuma Motors in 2005 resulting in cut in its production capacity and a decline in its sales of passenger cars in Indonesia.

In 2008, PT. Astra Daihatsu Motor succeeded in increasing its production capacity to 211,000 units per year from 105,000 units per year.

In 2010, PT. Astra Daihatsu Motor plans to further increase its production capacity by operating in two shifts to 286,000 units per year. he company will spend Rp 250 billion on the expansion plan to start in the second half of 2010 to be completed in 2011.

Production down 22.6% in 2009....

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