Indonesia Attracts Investments in Car Components Worth USD $1.5B
In 2014, Indonesia is expected to see capital inflow of between USD $1 billion and USD $1.5 billion of funds for investments in the country's car components industry. About 20 to 30 companies are eager to expand or start business in this sector of Southeast Asia's largest economy (each investing about USD $50 million). Indonesia's car industry is attractive due to record high car sales in recent years (triggered by strong domestic GDP per capita growth) as well as double-digit export growth (although coming from a low base).
Amid strong gross domestic product (GDP) growth in the past decade, Indonesia's per capita GDP has grown accordingly. In 2013, per capita GDP is estimated to have reached USD $3,816, thus having doubled from the year 2007 (USD $1,923). In the next five years, this figure is expected to hit the USD $5000-mark. However, the downside of looking at per capita GDP is that this statistic does not show income distribution inequality. Indonesia is characterized by increasing inequality in terms of income distribution evidenced by the country's increasing Gini ratio.
The Association of Indonesian Automotive Manufacturers (Gaikindo) stated that, despite several government policies that were expected to hurt domestic car sales, Indonesia broke last year's record in terms of sales. In 2013, a total of 1.2 million cars were sold on the Indonesian market (100,000 more than the previous record in 2012). Several government policies that limited car sales growth included higher prices of subsidized fuels (causing serious inflationary pressures thus curbing Indonesians' purchasing power) and higher interest rates due to Bank Indonesia's decision to raise its benchmark interest rate (BI rate) gradually from 5.75 percent (June 2013) to the current 7.50 percent. Another problem is the depreciating Indonesia rupiah exchange rate, which makes imports of car components much more expensive (the rupiah fell about 25 percent against the US dollar in 2013). As such, the government applauds expansion of the domestic car components industry.
Regarding Indonesia's exports of complete built units (CBU), an increase of 15 percent to 200,000 car units is expected in 2014. Last year, 173,000 CBUs, particularly multipurpose vehicles and sport utility vehicles, were exported to overseas markets.
In recent years, Indonesia has been transforming from a production hub (due to low wages) into a major sales market. With the influx of more and more investments in recent years (for the establishment of car factories), Indonesia aims to challenge Thailand to become the regional dominated car production hub. Honda Prospect Motor, Honda’s subsidiary in Indonesia, recently stated that it expects a rise in car sales of 86 percent to 170,000 cars in 2014 amid the release of its new Mobilio car and the establishment of its new factory in Karawang (West Java). This factory is its second manufacturing facility in Indonesia and has a production capacity of about 120,000 units per year (the company's total production capacity will accelerate to 200,000 units per year).
In 2013, Honda broke its own sales record in Indonesia by selling over 91,000 cars (a 32 percent increase from the previous year) and saw its market share rise to 7.5 percent in 2013. The company aims to expand market share to 14 percent in 2014 (Toyota is the dominating market leader in Indonesia, controlling over 50 percent of the car sales market).
|Month||Sold Cars 2012||Sold Cars 2013|
¹ preliminary figures
|Indonesia's Car Sales
(number of car units)
¹ preliminary figure
² future forecast
• Car Sales in Indonesia Expected to Rise in 2014 amid Political Elections
• Popular Low Cost Green Car Boosts Indonesian Car Sales in 2013
• Gaikindo Targets 10% Car Sales Growth in Indonesia for 2014
• Indonesian Automotive Industry: Car Sales Expected to Hit Record in 2013