Honda invests $140m to expand RI operations

Honda invests $140m to expand RI operations

Rendi A. Witular, The Jakarta Post, Cikarang, West Java

Motorcycle producer PT Astra Honda Motor (AHM), a local unit of
Japan's third largest automaker Honda Motor Co., expanded its
Indonesian operations by investing US$140 million in its third
motorcycle plant in Bekasi.

With the new plant, the production capacity in Indonesia of
the world's biggest motorcycle maker will increase from two
million units to three million annually, strengthening its
position as the country's largest motorcycle producer.

The plant, which was officially opened by President Susilo
Bambang Yudhoyono on Friday, is located on a 30-hectare site at
the MM 2100 industrial estate in Cikarang and employs some 4,000
local workers.

Susilo praised the plant and the new investment, which he
asserted was a sign of confidence by foreign investors in
Indonesia. His government has tried very hard to improve the
investment climate after it was hit hard by the 1997 financial
crisis.

"The government will continue to work on improving the
investment climate in the country to support higher economic
growth. Robust investment will also help job creation and mean
more tax revenue for the state," he said.

AHM President Director Minoru Yamashita estimated that the
company's motorcycle sales would increase by 30 percent this year
to 2.6 million units from two million last year, or nearly half
of the entire market share.

Analysts believe that the higher demand is driven primarily by
the cheaper price of motorcycles as well as easier loan
facilities.

Increasing fuel prices -- by an average of 29 percent on March
1 and another raise on Saturday -- has prompted people to switch
to motorcycles instead of using cars or poor public
transportation.

Globally, Honda Motor Co. estimates that motorcycle sales will
rise by 16 percent to 12.5 million units through the remainder of
the year with China, India and Southeast Asian countries leading
the growth.

In Asia, Honda forecasts total sales of 18.3 million
motorcycles this year, 20.53 million next year and 22.4 million
in 2007. The production expansion will be focused in Indonesia,
India, the Philippines and Pakistan.

The Tokyo-based company also plans to raise its motorcycle
production capacity in the region, excluding Japan, to 11 million
units next year and 14 million units in 2007, from about eight
million units last year.

In Indonesia, the expansion will be carried out by AHM, in
which Honda Motor and publicly listed PT Astra International have
equal 50 percent stakes in the company.

During the ceremony, Honda also unveiled its plan to introduce
new models, which will be more fuel efficient for countries in
the Association of South East Asian Nations (ASEAN) next year
starting in Thailand.

Elsewhere, president director of Astra International Michael
Dharmawan Ruslim said higher fuel prices would likely discourage
people from buying motorcycles. He added the company was still
calculating the impact of the fuel price increase to the demand
of motorcycle and cars, as well as reassessing the purchasing
power of the people.