Hyundai Indonesia upbeat over this year's 13,500 cars target

South Korean carmaker Hyundai Motor Company, which comprises the Hyundai and KIA units, is considering setting up a production base in Southeast Asia to take advantage of the ASEAN Free Trade Area (AFTA). The Jakarta Post's Novan Iman Santosa and Primastuti Handayani interviewed PT Hyundai Indonesia Motor's president director Jongkie D. Sugiarto recently on the plan as well as on the company's performance and outlook in Indonesia. The following are excerpts from the interview:

Question: How was Hyundai's performance in Indonesia last year and what about its targets for this year? Answer: Last year, we had a sales target of around 10,000 units, an increase of 8,500 cars compared to 2003. However, due to supply problems from our headquarters in Korea, we only managed to sell 7,800 units.

In the last five months of 2004, we didn't get enough supplies of CKD (completely knocked down) units. At that time, the plant in Korea was focusing on CBU (completely built up) production due to the increasing demand worldwide. Therefore, CKD production was neglected somewhat.

This year, the Hyundai Motor Company has decided to make CKD a priority. They are determined to make Hyundai the world's fifth largest market shareholder globally by 2010. This means we have to boost output to at least five million cars by then.

By comparison, in 2002 Hyundai was in seventh place with 2.9 million cars.

For Hyundai Indonesia, due to HQ commitments, we are aiming to sell 13,500 units this year.

What is Hyundai doing to achieve this ambitious target?

Well, we are preparing lots of CKD stock, applying attractive marketing programs and introducing new models. However, I can't tell you about the new models just yet.

How optimistic are you about achieving the target?

The automotive market is growing every year. Figures from Gaikindo (the Association of Indonesian Automotive Manufacturers) show that around 480,000 cars were sold last year. This year, it estimates that the size of the market will grow to 520,000.

We expect that cars priced between Rp 100 million (US$10,870) and Rp 130 million will dominate the market. Why? Because that is in line with the purchasing power of our people. That's why the Honda Jazz, Suzuki Karimun, Hyundai Atoz and Kia Picanto are all selling well.

People who now can only afford a motorcycle will be able to buy a Rp 100 million brand-new car in the next five years. Or, even sooner, they will be able to buy used cars priced at around Rp 40 million.

When they get richer, they will buy more expensive cars. That is why the market is growing.

Besides, if per capita income grows to more than $1,500, vehicle sales will also grow. The income per capita in Indonesia now is around $1,000. Just see over the next five years, it will reach $1,500.

Believe me, around one million cars will be sold in 2010. I expect Hyundai to take 10 percent of the market, meaning we can sell 100,000 cars. If this happens, I will need a new factory. For the next three years though, I won't be needing a new one because our production capacity is already 14,000 cars while our actual production last year was only 8,500.

Speaking about Hyundai's plan to invest in ASEAN, can you tell us more about the project?

Hyundai is still conducting detailed studies about the plan. It is going to be a big decision. We haven't decided where to build the plant -- it could be in Malaysia, Indonesia, Thailand, the Philippines or even Vietnam.

Hyundai is also studying which models we will produce in ASEAN and where. We have to identify the demand before putting our money in.

Indonesia, for example, is an MPV (multi purpose vehicle) country whereas Thailand is sedan country. That's why Toyota built its MPV plant here and a sedan plant in Thailand. Whenever Indonesia needs sedans, it can import them from Thailand, and vice versa.

Will Hyundai follow Toyota's move?

Why not? ASEAN is a very prospective market. For Hyundai, the best opportunity is to invest in Indonesia as no other ASEAN countries have a factory, except for Malaysia but this is only for the domestic market.

This is a big opportunity. I told them (HQ) to invest here.

Speaking about foreign direct investment, do you believe that the automotive industry in general will also benefit?

If investors are putting their money in Indonesia, they will definitely need vehicles for the operation of the industry, be it vehicles for the construction process or for transporting the managers and employees.

Once there is an investment, there will be construction and the automotive industry will benefit through the snowball effect.

It is true that Malaysia and Thailand, in ASEAN, are drawing more interest from foreign investors. But they should not forget that Indonesia has a population of 220 million people.

Of course, there are worries about the lack of legal certainty. But our government has been working hard to attract investors and overcome such issues.

What is Hyundai Indonesia doing to win the competition against Japanese cars?

We are 25 years behind the Japanese, but we have learned a lot.

The toughest challenge is actually to change people's perceptions of Korean products. Many people are still doubtful about their strength, spare parts availability, after sale service, warranties, etc.

Why is this the case? Because our people still lack education. They don't realize that Hyundai's sales are booming all around the world. But I believe that I won't need 20 years to change these perception. I will only need between five and eight years.

So, how will you do that?

This is part of my strategy. I have announced that around 1,250 fast-moving spare parts will be available to Hyundai car owners within 24 hours. Otherwise, they will get them for free.

I am also promoting quicker service as part of which our mechanics will get to where a customer is in one hour. I have stationed additional service cars at strategic locations, apart altogether from our dealerships. We also have mobile mechanics on motorcycles.