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INDONESIAN COMMERCIAL NEWSLETTER
MARKET INTELLIGENCE REPORT ON

AUTOMOTIVE INDUSTRY IN INDONESIA

April 2007



Current Isuues

Asia becoming automotive production center

World's major car makers such as Toyota, Mitsubishi, Suzuki, General  Motor, and  Ford have known no more territorial borders in expanding their operations including manufacturing operations. 

For efficiency and marketing, they established  production bases outside their countries of origin in a bid to control or have a larger share of the global market. Currently Asia has been chosen as a new production center. Many worlds' class auto makers have made Asian countries notably Southeast Asian countries as production centers.

Apart from Japan, which has long been a strong rival for the United States and Europe in auto industry, a number of other Asian countries such as China,  South  Korea and Malaysia, have  taken a big step toward a global player in the auto industry.

Recently, in Detroit Auto Show 2006, Zhejiang Geely Holding co. Ltd displayed   compact sedan product of  Geely 7157CK, which successfully gave a shock to the world car industrialists for its excellent quality and sophistications far superior than what most people think of Chinese products so far.

CEO Geely of USA John Harmer said the company is the first Chinese car maker having a market in the United States. Earlier another Chinese car maker Cherry already had planned to enter the U.S. market through cooperation with Daimler Chrysler but implementation was postponed until 2007.

AFTA to boost ASEAN automotive industry
    
Automotive industry has continued to grow in ASEAN notably after the implementation of the ASEAN Free Trade Area (AFTA), under which the import duty on car products  was  slashed to 0%-5% in 2003.

The import duty on a car having a local content of 40% is 5% in other ASEAN member countries. ASEAN is a group of 10 Southeast Asian countries.

Malaysia delayed joining other countries in the agreement on car trade as it was still concerned with protecting its domestic industry, Proton. It joined the free trade agreement only in 2006. 

The effect of the agreement is great. Japanese car makers rushed to increase investment including in Indonesia and Thailand to expand their assembling capacity to keep strong market foothold in this region. Toyota Avanza and  Innova, and Daihatsu Xenia began to push aside Proton even in Malaysia its home country. The decline in Proton's market share in Malaysia, forced it to change orientation more to export market. Indonesia is its main target. It plans to build its assembling plant in Indonesia scheduled to be in operation this year.

Indonesia Becomes  Production Centre

Agents of foreign principals in Indonesia now generally controlled by the principals, also have taken steps adjusting themselves to the change in policy in this region. Mitsubishi, aware that it could not do much in competition in the market of passenger/sedan cars stopped producing those types of cars in the country  and decided to maintain the remaining market share with cars supplied from its assembling plant in Thailand. Mitsubishi now concentrates on maintaining its lead in the market of trucks  in the country.
Indonesia has become the production center for  Suzuki especially for Suzuki APV, an  MPV category  below  1.500 CC. Suzuki APV has also entered markets in other Asean countries. It has even  been exported to various other countries in the world.

Import duty on basic material components reduced to increase competitiveness
The policy abolishing  the import duty on  spare parts and components of cars for exports, with a regulation of the finance minister No.79/PMK.010/2006 was protested by local producers saying it  contradicts a scheme to strengthen the domestic component industry. The policy will weaken the competitiveness of local products of components, they said.

The government, therefore, issued a regulation with a decision of the finance minister No. 34/PMK.011/2007 on 3 April 2007, reducing the import duty on the basic materials of automotive components to zero. The regulation, however, is effective only for 12 months.

Characteristics of auto industry in Indonesia

Auto industry in  Indonesia began to expand after the operation of brand holding sole agent (ATPM) early the 1970s through decisions of the Industry Minister No. 295/1982  and  No. 428/1987.  ATPM was  authorized to assemble, produce  and


distribute their products in Indonesia. ATPM have double functions as a sole sales agent  and as a producer.

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

However, after 30 years the program failed to work as expected as the industry remains heavily dependent on imports for components. The prices of car in the country, therefore, remain high.

The original objective of developing auto manufacturing industry in Indonesia became unclear with the deregulation measure in 1999 allowing imports of cars in Completely Built Up (CBU) form. The existence of ATPM became irrelevant  as many non ATPM companies imported cars in CBU form.

After the government itself said that the relations between ATPM and their principals are based on business principles and the involvement of the government is no longer needed, many principals finally took over the role of car manufacturing  in the country leaving ATPM only as a distributors for their cars.

Toyota Motor Corp. took over control of the assembling division of PT. Toyota Astra Motor (TAM) and left  TAM  as a distributor for Toyota cars. In 2003, the manufacturing sector was handled by PT. Toyota Manufacturing Indonesia (TMMIN), which is  95% owned by  Toyota Motor Corp.

Similarly Suzuki Motor Corporation took over the manufacturing activity of PT Indomobil Suzuki International by increasing its share to 90% from only 40% before leaving a 10% stake for Indomobil Sukses International. The distribution business is handled by PT Indomobil Niaga International. 


Brand Holding Sole Agents (ATPM)

Astra and Indomobil are two largest automotive companies in the country having affiliation with a number of foreign principals. They become agents for the  Indonesian market.

Astra handles the distribution of a number of Asian and European brands including Toyota, Daihatsu, Isuzu, Nissan Diesel, Peugeot and  BMW.

The Indomobil Group handles the distribution of Suzuki, Volvo, Audi, Nissan, Ssangyong, Hino, Renault, VW Caravelle and Chery. Other agents are individual companies belonging to no company group.


In addition, there are a number of ATPMs serving as agents for cars of  a number of brands such as  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.

VW Caravelle is a product of Volkswagen, but its agent in Indonesia is PT Garuda Mataram Motor instead of PT Car & Cars Indonesia, which is the ATPM for Volkswagen in the country.

PT Garuda Mataram Motor became its agent after it was named to import VW Caravelle cars  for use during the APEX Summit in the country in 1992. PT Car & Cars Indonesia is now agent only for VW passenger Car/sedan.

Production Capacity

Some of the ATPMs still function as both producers and distributors  but other ATPMs have become two independent companies - manufacturing company and distributor such as in the case of PT Toyota Astra Motor, which now operates only as a distributor. Its manufacturing division has become an independent company with the name of PT Toyota Motor Manufakturing Indonesia (TMMIN) as from  July, 2003. PT TMMIN  is 95% owned by Toyota Motor Corporation  and 5% by  PT Astra Internasional.

Suzuki Motor Corporation has also increase its stake in PT Indomobil Suzuki International as the ATPM for Suzuki in Indonesia. PT Indomobil Suzuki International now operates only as a manufacturing company  as the distribution job has been handed over to PT Indomobil Niaga International as its Sole Distributor.

Some ATPMs have no assembling facility such as PT Tjahja Sakti Motor as agent for  BMW cars,  PT Astra France Motor as agent for  Peugeot, PT Pantja Motor as agent for Isuzu cars, etc. They have their cars assembled by other assembling companies like  PT Gaya Motor, which is not an ATPM or other ATPM affiliate such as in the case of Ssangyong car, which is assembled by  PT Nissan Motor Indonesia  - both affiliated to  the Indomobil Group. 

Toyota Manufacturing Indonesia (TMMIN) has the largest production capacity  among car assembling companies in the country with a total capacity of 170,000 units a year. Mitsubishi, which was once the second largest in capacity  with two assembling plants - PT Krama Yudha Ratu Motors for commercial cars and PT Krama Yudha Kesuma Motors for passenger cars suffered a setback notably in the years after the crisis. In 2005, PT Krama Yudha Kesuma Motors stopped operation after a decline in sales of Mitsubishi passenger cars in the country..............................


MONTHLY REPORT

INDONESIAN  COMMERCIAL NEWSLETTER
       
May 2007

       
List of Contents

FOCUS:  INTEREST RATES SCALING DOWN BUT CREDIT REMAINED UN-DISBURSED        1


INDUSTRY PROFILE:  PROFILE OF AUTOMOTIVE INDUSTRY          5
  • Backgrounds        5
  • Structure of auto industry        6
  • Production        12
  • Sales        13
  • Exports        18
  • Imports        19
  • Government policy        20
  • Marketing aspect        23
  • Distribution system        33
  • Market share of major players of auto makers in Indonesia        36
  • New investment        40
  • Prospects and conclusion        41

FINANCE:
     AUTO INSURANCE MARKET HAUNTED BY TARIFF WAR        42
  • Premium developments        42
  • Auto insurance players        44
  • Tariff war        45
  • Auto insurance services        47
  • Marketing strategy        47
  • Conclusion and prospects        49

     AUTOMOTIVE FINANCING INDUSTRY BULLISH        50
  • Backgrounds        50
  • ACC dominates nearly 65% car financing market        51
  • FIF dominates motorcycle finacing market        52
  • Market size of automotive financing service        55
  • Interest rate and down payment        56
  • Competing against banks        56
  • Cooperation system between banks and leasing companies        57
  • Bonds of leasing companies        60
  • Conclusion        61

INDUSTRY:
   MOTORCYCLE INDUSTRY SEES BRIGHTER DAYS IN 2007        62
  • Production capacity growing        62
  • Foreign investment increases capacity        63
  • Sales down in 2006        65
  • Automatic scooters a new driving motor for growth        67
  • Competition and strategy        68
  • Conclusion        68

    ABOLITION OF IMPORT DUTY ON BASIC MATERIALS FOR COMPONENTS IMPROVES COMPETITIVENESS
  • Japanese companies dominate domestic component industry        70
  • Astra and Indomobil largest producers of automotive components        74
  • Development of component industry        75

CORPORATE NEWS IN BRIEF:
  • GT chooses Indonesia base for software business expansion        76
  • Internusa teams up with LCL in cargo transport business        76
  • Malaysian plantation companies expand operation in Indonesia        76
  • Emaar Properties of Dubai to build resort area in Lombok        76
  • Essar licensed to build steel plant in Indonesia        77
  • Agis to acquire two electronic companies        77
  • Pertamina-Lukoil overseas to cooperate in oil and gas        77

ECONOMIC NEWS IN BRIEF:
  • Asean and major Asian Economies to form joint Forex reserve        78
  • Asean to liberalize aviation in respective capitals        78
  • Import duties on basic materials of automotive component abolished        78
  • Lee Hsien pledges support for the return of ill-gotten wealth        79
  • Govt. threatens to take over airport railway project        79
  • Textile companies propose to take part in restructuring program        79
  • LNG exports to Japan from Bontang reduces to 3 million tons a year        80
  • Use of vehicle company will be banned        80

APPENDICES:
  • Directory of brand holding sole agents (ATPM), distributors, manufacturer in Indonesia        81

ECONOMIC INDICATOR:
  • Consumer Price Index in Indonesia        83
  • Oil Prices        84
  • Foreign Exchange and Gold Price in Indonesia        85
  • The Indonesian Economic Trends        86
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