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.