Car sales reach record high, but still no industry

Zakki P. Hakim, The Jakarta Post/Jakarta

The year 2004 was an important one for Indonesia's "car industry", with sales expected to reach a record high of over 450,000 units, marking the sector's full recovery from the devastating impact of the late 1990s economic crisis.

Total car sales as of November were already at 434,743 units, surpassing the 385,000 unit full-year target set by the Association of Indonesian Automotive Industries.

Indonesia recorded its highest car sales in 1997 with 386,691 units, right before the regional economic crisis struck.

Sales in 1998 collapsed to 68,000 units before rebounding to about 300,000 in 2000 and steadily climbing since.

Observers say the strong car sales in 2004 were partly due to the aggressiveness of the banking sector in offering cheap loans to consumers.

As the central bank has cut domestic interest rates to record lows, banks and automotive companies have joined hands to provide attractive loan packages, enabling many Indonesians to buy new cars despite their limited purchasing power.

The lower interest rate environment came at a time when car manufacturers were also introducing more inexpensive and attractive models of multipurpose vehicles (MPVs), making 2004 the year of the MPV.

Indonesians caught the MPV craze, as shown by the performance of the Toyota Kijang MPV which controlled 68 percent of the domestic minivan market in 2004.

The Kijang has been the most popular van in the country since it was first introduced in 1977, with users ranging from the rich to the middle and lower classes.

The Kijang is the first four-wheeled vehicle in the country to reach the one million production mark, which it hit in October 2004.

In September, Toyota launched the much-awaited Kijang Innova -- the new generation of Kijang van. The manufacturer quickly began eying the export market, with the first batch of exports sent to Thailand and Brunei in late November. Toyota plans to manufacture 80,000 Innovas annually and export 10,000 of the vehicles each year.

About 10,000 Innovas were sold domestically in the first two months after its introduction, with the market price about Rp 240 million (about US$26,500).

No wonder Japan's leading automaker Toyota Motor Corporation selected Indonesia as its global production base for minivans.

Late last year, local MPV fans were introduced to the "vehicle of their dreams" when Toyota and Daihatsu launched inexpensive minivans with price tags under Rp 100 million (much cheaper that a Toyota Kijang van, which has a price tag of between Rp 130 million and Rp 150 million). The vehicles were called the Toyota Avanza and Daihatsu Xenia.

Other manufacturers followed suit, launching various vehicles under Rp 100 million, including the Suzuki AVP. This trend, combined with the low interest rate environment, contributed to strong car sales in 2004.

So, car sales were high. Now what? Indonesia still does not manufacture cars, but simply assemble them. Is the country capable of designing and manufacturing a car? Do we have the technology to develop a car? Do we have the human resources? Do we actually have a proper automotive industry?

For the past 30 years, the government has wanted to create a local automotive industry. This dream began with a policy banning the import of completely built-up (CBU) cars in 1974, hoping that as the completely knocked down (CKD) car industry grew, there would be a transfer of technology that would enable locals to manufacture their own vehicles.

After three decades, however, the local automotive industry is still stuck at the level of assembling cars due to the dependence on overseas firms like Daihatsu, Isuzu, Nissan, Toyota, Honda, Mitsubishi, Suzuki, Kia, Hyundai, General Motors, Daimler Chrysler and BMW-AG.

Former minister of industry and trade Rini MS Soewandi said in September she had drawn up a "road map" for developing local industries, including the automotive industry.

Rini's successor, Minister of Industry Andung A. Nitimihardja, said that he was reviewing the road map, adding that the new government was likely to adopt much of the plan.

One of the problems hampering the development of the local automotive industry is the limited technology capacity to produce materials and components. For many years, local car assemblers have relied on imported components because of limited supporting industries.

The new government is making new plans to develop the industry, including offering incentives to boost investment in auto components, developing human resources and increasing research activity.

The Ministry of Trade plans to introduce measures that would secure the domestic market by harmonizing tariffs and taxes, increasing the use of local components and controlling imports of used vehicles.

In the long run (2010-2020), the ministry aims to establish a research and development center for developing automobiles and their components, while intensifying cooperation with local universities and leading car manufacturers around the world.

The government realizes that the car component industry can create jobs, which is crucial to help resolve the chronic unemployment problem here.

While car manufacturers provide jobs for 33,365 workers, the component industry hire 53,583 employees. This does not include the 17,010 people working at small and medium industries producing components.

The Ministry of Industry expects the local component industry in five years to be able to supply 80 percent of the vital parts (called first-tier components) for assembling four-wheel vehicles.

Car output by 2009 is projected to reach 750,000 units per year, of which 10 percent will be allocated for export.

In what may be seen as the government's seriousness in developing the automotive industry, minister Andung last month announced the formation of a new directorate general at his ministry to supervise the transportation, electronics, and information and communications technology sectors.

As its ultimate long-term goal, the ministry envisions that by 2020 the automotive industry will be able to develop, design and engineer a motor vehicle, as well as to contribute to global engineering design activities.

Fifteen more years to go. In the meantime, we hope to be caught in a happy circle of: cheaper cars leading to increased sales, which in turn will trigger automakers to increase production and demand for more components, creating new jobs, thus increasing people's income and in turn raising demand for cars.