Although it was no surprise to hear that American car manufacturer Ford Motor Company decided to exit Japan, few expected the car giant to leave Indonesia. On Monday (25/01), Ford Motor Company announced it will have closed its sales operations in Indonesia and Japan by the end of 2016. This decision came nearly one year after American multinational corporation General Motors Company (GM) decided to shut down its Chevrolet Spin production plant in Indonesia. Why do major American (and European) car manufacturers have difficulty to tap the Indonesian car market?
Indonesia is both Southeast Asia's largest economy and the largest car market. With per capita car ownership of Indonesia relatively low (it is estimated that less than eight percent of the Indonesian population owns a car), having a young and large population (implying many first-time car buyers are to come) and growing per capita GDP, Indonesia should be a very attractive market for any car manufacturer.
Regarding per capita GDP, Indonesia hit the USD $3,000 mark in 2010. Generally, this level is considered an important threshold as it tends to result in accelerated growth in a number of sectors including the automotive industry. Others put this threshold at USD $5,000 (per capita GDP) for consumer spending on large items (including cars) to start rising strongly. Provided economic growth of Indonesia will accelerate in the years to come the nation can hit the USD $5,000 per capita GDP threshold within five years.
After a dip in 2009 (caused by the impact of the global financial crisis), Indonesia's domestic car sales rose rapidly from 764,710 vehicles in 2010 to 1.2 million vehicles in 2013, before stagnating in 2014 (again recording 1.2 million sold units) and then falling to 1.0 million vehicles in 2015.
Read Analysis: Why Have Indonesia's Car Sales Declined after 2014?
Despite relatively weak car sales since 2014, there is still ample room for growth in the years ahead provided the country's economic growth accelerates. Many believe that the year 2016 is the year that will finally show an acceleration of economic growth after five years of slowing economic growth. Indonesia's GDP growth is expected to reach 5.3 percent (y/y) in 2016 from an estimated 4.7 percent (y/y) last year.
However, the main disadvantage for American and European car manufacturers is that Indonesia's car market is dominated by Japanese automakers. For example, in 2015 a total of 1,013,291 vehicles were sold on the Indonesian market. However, 928,317 vehicles were Japanese branded cars (with especially Toyota dominating sales in Indonesia), leaving very little for non-Japanese brands such as GM and Ford. The table below shows the declining trend of Ford's sales in Indonesia over the past five years hence causing the company's reduced profitability.
Car Sales Ford Motor Company in Indonesia
|Year||Sold Car Units|
Indonesian Car Sales (CBU):
|Month||Sold Cars 2012||Sold Cars 2013||Sold Cars 2014||Sold Cars 2015|
|UD Trucks (Astra)||854||560||-34.4|
Source: Astra International
The article asks a question, but does not provide an answer; That Japanese car makers dominate the market is not the answer, but an effect of SOMETHING. Hence, it would show real journalistic skill if the author of the article tried to answer his own question - WHY do Japanese carmakers dominate the market to MONOPOLY degree ? Does Japan have preferential tax exemptions, and what are the reasons for such, what are the benefits for Indonesia of such, and what is the downside of such ?
Journalist; Dont just convey information, - but background and intelligent analysis please !