Automotive Manufacturing Industry Indonesia

The automotive industry of Indonesia has become an important pillar of the country's manufacturing sector as many of the world’s well-known car corporations have (re)opened manufacturing plants or expanded production capacity in Southeast Asia’s largest economy. Moreover, Indonesia experienced a remarkable transition as it evolved from being a merely export oriented car production center (especially for the Southeast Asian region) into a major (domestic) car sales market due to rising per capita GDP. In this section we discuss Indonesia's car manufacturing industry.

Indonesia is the second-largest car manufacturing nation in Southeast Asia and the ASEAN region (trailing rather far behind Thailand that controls about half of total car production in the ASEAN region). However, due to robust growth in recent years, Indonesia is expected to somewhat limit the gap with Thailand's dominant position over the next decade. To overtake Thailand as the biggest car manufacturer in the ASEAN region will, however, require major efforts and breakthroughs. Currently, Indonesia is primarily dependent on foreign direct investment, particularly from Japan, for the establishment of onshore car manufacturing facilities. The country also needs to develop car component industries that support the car manufacturing industry.

Per 2017 Indonesia's total installed car production capacity stands at 2.2 million units per year. However, the utilization of Indonesia's installed car production capacity is expected to fall to 55 percent in 2017 as the expansion of domestic car manufacturing capacity has not been in line with growth of domestic and foreign demand for Indonesia-made cars. Still, there are no major concerns about this situation as domestic car demand has ample room for growth in the decades to come with Indonesia's per capita car ownership still at a very low level.

In terms of market size, Indonesia is the biggest car market in Southeast Asia and ASEAN. Indonesia accounts for about one-third of total annual car sales in ASEAN, followed by Thailand on second position. Indonesia not only has a large population (258 million inhabitants) but is also characterized by having a rapidly expanding middle class. Together, these two factors create a powerful consumer force.

Car Sales in ASEAN:

Country	2014	2015	2016	2017
Thailand	881,832	799,632	768,788	871,650
Indonesia	1,208,019	1,013,291	1,062,716	1,079,534
Malaysia	666,465	666,674	580,124	576,635
Philippines	234,747	288,609	359,572	425,673
Vietnam	133,588	209,267	270,820	250,619
Singapore	47,443	78,609	110,455	116,148
Brunei	18,114	14,406	13,248	11,209
ASEAN	3,190,208	3,070,488	3,164,742	3,331,468

Car Production in ASEAN:

Country	2014	2015	2016	2017
Thailand	1,880,007	1,913,002	1,944,417	1,988,823
Indonesia	1,298,523	1,098,780	1,177,797	1,216,615
Malaysia	596,418	614,664	545,253	499,639
Philippines	88,845	98,768	116,868	141,252
Vietnam	121,084	171,753	236,161	195,197
ASEAN	3,984,877	3,896,967	4,020,496	4,041,526

Attracted by low per capita-car ownership, low labor costs and a rapidly expanding middle class, various global car-makers (including Toyota and Nissan) decided to invest heavily to expand production capacity in Indonesia and may make it their future production hub. Others, such as General Motors (GM) have come back to Indonesia (after GM had shut down local operations years earlier) to tap this lucrative market. However, Japanese car manufacturers remain the dominant players in Indonesia’s car manufacturing industry, particularly the Toyota brand. More than half of total domestic car sales involve Toyota cars. It is a very difficult challenge for western brands to compete with their Japanese counterparts in Indonesia, known as the backyard of Japanese car manufacturers.

Although the relatively new low-cost green car (LCGC) has gained popularity in Indonesia (see below), most Indonesians still prefer to buy the multipurpose vehicle (MPV). Indonesians love the MPV, known as "people carriers", as these vehicles are bigger and taller than most other car types. Indonesians need a big car because they enjoy taking trips with the family (and/or invite some friends). The MPV can typically carry up to seven passengers. Car manufacturers are aware of high MPV demand in Indonesia and therefore continue to launch new (and better) models. With functionality in check, manufacturers now particularly focus on improving the design of the MPV to entice Indonesian consumers.

Also the low sport utility vehicle (LSUV) has gained popularity in Indonesia. However, it will be very difficult for the LSUV to become the market leader in Southeast Asia's largest economy as the LSUV has limited space for passengers.