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Indonesia bids to woo auto makers away from Thailand

Honda opened its second car-manufacturing factory in Indonesia this month, and Datsun, Nissan's newly reintroduced low-cost brand, is set to follow suit in April.

Toyota is also looking at expanding production in Indonesia, officials say, as political uncertainty in Thailand sees businesses and investors look elsewhere in the region.

Indonesian officials have made no secret that they want to compete with Thailand for a large slice of the region's vehicle production. Recent developments in Thailand could boost their efforts to woo big names to invest more in Southeast Asia's largest economy, where car ownership remains relatively low but is expected to rise in the coming decade.

"We're improving our physical infrastructure, and have had good economic growth and political stability," said Budi Darmadi, director-general for high-technology priority industries at Indonesia's Industry Ministry.

"Consumer spending power is increasing, and there is a more skilled labour force. All this has attracted investors," he said.

Budi said Indonesia was ready to help accommodate new investments, citing recent tax incentives, the growth of supporting car-component industries and a second terminal dedicated to handling vehicle cargo in North Jakarta that will help exports, slated to begin operation this year.

This week, Bloomberg reported that foreign investors had withdrawn some US$3 billion (Bt99 billion) from Thai stocks since protests began three months ago, and put $190 million into Indonesian shares this year.

Malaysia too has moved to compete with Thailand for investments in the car industry. Two weeks ago, it eased restrictions on foreign carmakers by allowing all hybrid and electric passenger vehicles to be produced in the country.

Although Indonesia goes to the polls this year, Mahendra Siregar, chief of its Investment Coordinating Board, is confident the country will meet its target of 311 trillion rupiah (Bt845 billion) in foreign direct investment, up from 270 trillion rupiah last year.

"The trust in the maturity of politics and democracy in Indonesia is far greater than that in other countries. Elections are considered a positive factor here," he said recently.

Industry Minister M S Hidayat recently said two big-name Japanese carmakers had spoken to him about their plans to shift some production to Indonesia because of concerns in Thailand, but he declined to reveal more.

Indonesia produced more than 1.1 million cars, mainly for the local market, in the first 11 months of last year, well behind Thailand's 2.3 million.

The ratio of cars to people in Indonesia remains low at 1:20, well below its neighbours. Singapore's is 1:9 and Thailand's 1:5. But demand in Indonesia is projected to grow, with more than 1.3 million cars to be sold this year and more than 2 million by 2018, aided by backing for eco-cars like the Toyota Agya and Daihatsu Ayla. This makes moving facilities to Indonesia more enticing, in spite of concerns about infrastructure shortcomings.

Budi said Daihatsu, Suzuki and Toyota recently expanded their operations, and BMW and Mercedes-Benz were expanding their assembly plants.

Toyota is the market leader, with more than 434,000 cars sold last year, followed by Daihatsu with 185,000 and Suzuki with 164,000 units, according to the association of Indonesian carmakers, Gaikindo.

But while Toyota mentioned a review of its expansion plans in Thailand last week, Bob Azam, Toyota Indonesia's general manager for external affairs, said no concrete plans of relocation from Thailand to Indonesia had been drawn up.

Christopher Foss of Car Keys Indonesia, which advises auto companies, said Indonesia's dilapidated infrastructure, unpredictable minimum-wage increases and lingering questions about quality will see carmakers tread carefully about doing more in that country, for now.


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