Indonesia could overtake Thailand as Asean’s auto production hub

Auto & Audio March 14, 2016 01:00


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STRONG EVIDENCE suggests that Indonesia could replace Thailand as the main automotive-production hub in Asean, according to Ipsos Business Consulting.

Last year, the production gap between the two countries was around 810,000 units, but by 2020, the difference is forecast to be 465,000 due to an increase in plant utilisation in Indonesia.

At present, Indonesia has an installed production capacity of close to 2 million vehicles, but was only utilising around 62 per cent of this capacity in 2015. If the utilisation rate remains the same, Indonesia should need further investment of up to US$2.6 billion (Bt91 billion) for new or expanded plant capacity to close the gap.

“The evidence is clear that in terms of the trend in vehicle production output, policy development, and improvements in infrastructure, [Indonesia] continues towards increasing capacity, increasing domestic consumption and increasing export volumes. Automotive manufacturers and policymakers in Indonesia, Thailand and elsewhere will want to consider the implications,” said Markus Scherer, global automotive-sector leader at Ipsos Business Consulting.

With output of 1.1 million units last year, Indonesia was the second-largest auto producer in the Asean region, after Thailand. And even though domestic car sales slumped by 16 per cent last year to the lowest level since 2011, sales figures reached 1.1 million, compared with 799,000 in Thailand.

The automotive industry has become an important pillar of Indonesia’s manufacturing sector in recent years, and the outlook is bright. At least three automotive companies are eager to invest a combined 21 trillion rupiah (Bt56 billion) to expand production capacity this year.

The Thai authorities may have sensed the threat. Top executives of three Japanese auto companies recently had discussions with Prime Minister General Prayut Chan-o-cha on the future of the automotive industry.

Last week, the first move was made to confirm Thailand’s aim to reserve its first place, with focus on next-generation automobiles: The National Energy Policy Council approved the first phase of the push to promote nationwide use of electric vehicles in Thailand.

Historically, Indonesia has not been as successful as Thailand at building its export markets, exporting only 23 per cent of its domestic production in 2015 compared with Thailand’s 55 per cent.

However, the latest Ipsos report highlights that 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. Douglas Cassidy, Indonesia country head at Ipsos Business Consulting, stated: “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, and whether they can defend their existing market share as other companies look to expand in Indonesia and Asia.

Cost benefit

“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.” Chukiat Wongtaveerat, senior consulting manager at Ipsos’ Bangkok office, said Thailand can still protect its automotive industry.

He noted that several high-profile automotive OEMs (original equipment manufacturers) had announced exit strategies from the Indonesia market, most notably Ford Motor Company and General Motors. He said 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 Southeast 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,” he said.