A strong growth was still recorded for the country's motorcycle industry until the third quarter of 2008, a growth attributable mainly to increase in the purchasing power of people in the regions as a result of soaring price of plantation commodities. A slowdown, however, was felt in the last quarter of that when the global financial crisis began to bite.
For most people in urban and rural areas in Indonesia, motorcycles provide a cheap means of transport. The existing motorcycle makers, therefore, continued to plan capacity expansion and more investors indicated interest in starting business in motorcycle industry toward the end of 2008.
Starting the fourth quarter of 2008, sales of motorcycles began to decline with weak demand but altogether, a strong growth of 33.24% was recorded in sales in 2008. However, the prospects look gloomy in 2009.
Lower inflation marked with deflation in December, 2008 and January, 2009 as a result of the oil fuel price cut, and relaxation in monetary policy adopted by the central bank, might help prop up the market this year.
Meanwhile, competition will remain sharp with the weak market. Competition will be in prices, models, and quality. The competition is sharper between Honda and Yamaha, the market leaders.
The country's motorcycle industry still showed strong growth until 2008 as shown by the increase in sales and expansion of capacity over the past several years. The capacity increased with the operation of new producers like TVS and Bajaj Auto, both from India. A number of old players such as Honda and Yamaha also plan capacity expansion.
The world has suffered economic recession in 2008 but some of the investment plans are expected to be implemented. Bajaj Auto said it will go ahead with plan to expand the capacity of its factory in Cikarang with an investment of US $ 60 million in the middle of 2009. The investment will change the factory from one producing motorcycles from semi know down components to one producing motorcycles from Completely Knock-Down (CKD) components.
Meanwhile, Yamaha has completed expansion of the production capacity of its factory in Karawang, West Java in November, 2008. The capacity was expanded from 1.8 million units of motorcycles per year to 2.4 million units of motorcycles per year. The capacity is to be expanded further to 3 million units per year in 2010.
The company will invest US$88 million for the capacity expansion, construction of additional factory buildings and training center and procurement of facilities and equipment.
Honda plans to expand its capacity this year by 10%, but implementation of the plan will depend on the economic condition.
The capacity expansion brought the total capacity of the country's motorcycle industry to 7.86 million units per year in 2008. The expansion of capacity is to meet growing demand that buyers sometimes have to wait for up to three months to have the latest product of motorcycle
The global economic slowdown did not affect his market of motorcycles until 2008 as the people's purchasing power was relatively strong at least until the third quarter of that year. The condition encouraged producers to expand their capacity. However, the recession began to bite and demand is expected to fall this year.
The country's production of motorcycles has continued to scale up since 2006 to reach 4.7 million in 2007 or an increase of 5.6% from 2006. In 2008, the production grew sharply by 33.3% to 6.27 million units.
In 2009, production is forecast to slow down with the decline in the purchasing power of the people.
Table - Motorcycles production of AISI, 2004 - 2008