Indonesia bids to woo carmakers away from Thailand

Honda opened its second car manufacturing factory in Indonesia this month, and Datsun is set to follow suit in April.

Toyota is also looking at expanding production in Indonesia, officials say, as ongoing political uncertainty in Thailand sees businesses and investors look elsewhere in the region.

Indonesian officials have made no secret that they want to compete with Thailand for a large slice of the region's vehicle production.

Recent developments in Thailand could boost their efforts to woo big names to invest more in South-east Asia's largest economy, where car ownership remains relatively low but is set to rise in the coming decade.

"We're improving our physical infrastructure, and have had good economic growth and political stability," said Mr Budi Darmadi, director-general for high-technology priority industries, at Indonesia's Industry Ministry.

"Consumer spending power is increasing, and there is a more skilled labour force. All this has attracted investors," he told The Straits Times.

He said Indonesia is ready to help accommodate new investments, citing recent tax incentives, the growth of supporting car component industries and a second terminal dedicated to handling vehicle cargo in North Jakarta that will help exports, slated for operations later this year.

This week, Bloomberg news agency reported that foreign investors had withdrawn some US$3 billion (S$3.8 billion) from Thai stocks since protests began three months ago, and put US$190 million into Indonesian shares this year.

Malaysia, too, has moved to compete with Thailand for investments in the car industry. Two weeks ago, it eased restrictions on foreign carmakers by allowing all hybrid and electric passenger vehicles to be produced in the country.

Although Indonesia goes to the polls this year, investment coordinating board chief Mahendra Siregar is confident it will meet its target of 311 trillion rupiah (S$31 billion) in foreign direct investment, up from 270 trillion rupiah last year.

"The trust in the maturity of politics and democracy in Indonesia is far greater than that in other countries. Elections are considered a positive factor here," he said last week .

Industry Minister M.S. Hidayat recently said two big-name Japanese carmakers had spoken to him about their plans to shift some production to Indonesia because of concerns in Thailand, but he declined to reveal more.

Indonesia produced over 1.1 million cars, mainly for the local market, in the first 11 months of last year, well behind Thailand's 2.3 million.

The ratio of people to cars in Indonesia remains low at 20:1, well below its neighbours. Singapore's is 9:1 and Thailand's 5:1.

But demand is projected to grow, with more than 1.3 million cars expected to be sold this year, and over 2 million by 2018, aided by backing for green cars like the Toyota Agya and Daihatsu Ayla.

This makes moving facilities here more enticing, in spite of ongoing concerns about infrastructure shortcomings.

Mr Budi said Daihatsu, Suzuki and Toyota recently expanded their operations, and BMW and Mercedes-Benz are expanding their assembly plants.

Toyota is the market leader, with over 434,000 cars sold last year, followed by Daihatsu and Suzuki with 185,000 and 164,000 units respectively, according to association of Indonesian carmakers, Gaikindo.

But while Toyota mentioned a review of its expansion plans in Thailand last week, Mr Bob Azam, Toyota Indonesia's general manager for external affairs, told The Straits Times no concrete plans of relocation from Thailand to Indonesia have been drawn up.

Mr Christopher Foss of Car Keys Indonesia, which advises car companies, said Indonesia's dilapidated infrastructure, unpredictable minimum wage hikes and lingering questions about quality will see carmakers tread carefully about doing more here, for now.

But he said the long-term investment outlook is overwhelmingly positive, once demographics are factored in.

Indonesia's population will surpass 300 million in 2035, the government said on Wednesday.

Mr Foss said: "The massive base of potential consumers who are just starting to achieve middle-class status simply cannot be ignored."

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