Indonesia Automotives Report Q1 2007

It was always a tough act to follow, but Indonesia fell significantly short of 2005's record vehicle sales with a 40% drop in 2006. Despite a rally in November 2006, when a cut in interest rates and a number of product launches pushed sales up by 61% compared with October and 28% from the previous November, full-year sales came in at 318,876 units, compared with 533,841 units in 2005. However, BMI's Indonesia Automotives Report suggests that a recovery is on the cards in 2007, forecasting sales growth of 6% year-on-year (y-o-y). This is slightly lower than the more optimistic view of Toyota, which expects double-digit growth, but BMI is basing its view on the reduced cut in interest rates from 50bps in late 2006 to 25bps in January 2007.

In particular, the commercial vehicle segment, which contracted by 43% in 2006, should be supported by the decision of South Korea's Hyundai to invest US$23mn in a new Indonesian facility, which is being built by local partner Korindo Group and will have an annual production capacity of 6,000 units, comprising 3,600 buses and 2,400 trucks. The vehicles will be produced from completely knocked down (CKD) kits, starting in March 2007. Hyundai is banking on a revival in the segment linked to economic recovery, which should lift the automotive market as a whole. Indonesia's ability to attract such investment from international firms has earned the market the ranking of joint seventh, along with the 'Detroit of Asia', Thailand, in BMI's Business Environment Ranking for the automotive industry in Asia Pacific. Despite scoring lower than the regional average for output growth potential, Indonesia does rank highly in terms of its regulatory environment. Indeed, this is evident in the government's handling of the Hyundai project. Indonesia's Ministry of Industry has cooperated with Hyundai and, according to the director-general of transport industry, Budi Darmadi, has suggested that the project be extended to include more passenger vehicles based on the increasing demand for small cars.

Although the market may attract new entrants, Toyota remains the market leader and despite the poor industry performance in 2006, the Japanese firm bucked the trend to increase its market share to 38.8% from 34% in 2005. Toyota sold 123,703 units in 2006, largely thanks to its product range, which covers the growth segments of the small car market with the Yaris, through to the multi-purpose vehicle (MPV) segment with the Avanza. The Japanese giant looks well placed to continue this run of success in 2007 with the launch of further additions to its portfolio. Following the success of their earlier co-operation on the Avanza, the company will once again team up with affiliate Daihatsu to produce a compact sports utility vehicle (SUV). Moreover, Toyota plans to introduce one of its most successful models to Indonesia, when it begins imports of the Prius later in 2007.