Indonesia Autos Report Q2 2008

In 2007, Indonesia's autos market recovered from its slump of the previous year, achieving growth of 36.2%, to reach total sales of 434,449 units. The rise in car sales was supported by an improving macroeconomic environment, falling inflation, a stable exchange rate and reductions in interest rates.

Auto sales reached a peak in November, with 45,827 units sold within the month. This marked the 16th consecutive month of growth since Bank Indonesia (BI) began its rate cuts. Looking ahead, BMI's recently published Indonesia Autos Report suggests that growth is sustainable, albeit at a more stable level, given that the government will want to avoid the risk of inflation following the economy's strong growth in 2007.

Indonesia is also growing in strength as a production base, with a number of manufacturers including the country in their plans. Both General Motors (GM) and Renault are studying potential projects, which could include an export element. If these projects come to fruition they would impact upon BMI's fiveyear forecast, which currently envisages output growth of around 60% between 2008 and 2012. Full-year production of 419,040 units in 2007 was a 41.6% improvement on 2006. Exports, meanwhile, should also rise on the back of such production projects. By 2012 we expect exports to account for 31% of local production.

Indeed, Indonesia, which ranks sixth in BMI's new Business Environment Ratings, on 56.2 out of 100, is South East Asia's largest passenger car market and as such, will always have an appeal for investors. Low labour costs and a competitive environment, with room for new players, increase Indonesia's attractiveness, as do its recently upgraded regulations on intellectual property rights, which boost its regulatory environment rating. The country's Risks to Realisation of Returns score drags slightly on the market risks, however, with low scores for corruption, bureaucracy and the legal framework.

In terms of Indonesia's competitive environment, PT Toyota-Astra Motor is aiming to increase its sales by 15-20%, as it seeks to consolidate its leadership of the market. The firm, which controls production and marketing of Toyota vehicles in Indonesia, sold 150,677 vehicles in 2007 and had a 34.7% market share. Its nearest rival was Mitsubishi with a market share of 14.1%, followed by Suzuki on 13.4% and Daihatsu on 12.0%. The year also saw the launch of the first Chinese SUVs in the country as Chery rolled out its Tiggo. The model competes against SUVs from more established brands, such as the Honda CR-V, Suzuki Grand Vitara and Nissan X-Trail, but has a price advantage, which could see the model find a niche in the market.