'Maintaining growth is the best incentive for investors'

'Maintaining growth is the best incentive for investors'

PT Honda Prospect Motor's (HPM) decision to launch its new
compact vehicle, called Jazz, last year proved to be a perfect
strategy, with sales of the car comprising some 53 percent of
Honda's total sales of 46,500 units. Sales of the vehicle
skyrocketed 215 percent from 2003's 21,650 units. This year, HPM
is targeting to sell around 53,000 cars, or 10 percent of total
projected market share. The Jakarta Post's Novan Iman Santosa and
Primastuti Handayani spoke to HPM President Director Kenji Otaka
on the company's sales projections and the national car industry
as a whole. These are some excerpts from the interview:

Question: Recently, Jetro's (Japan External Trade
Organization) CEO Osamu Watanabe said Indonesia still needed to
improve its supporting industries, especially in the automotive
and electronics sectors. What's your comment?

Answer: In my personal observation, the quality of labor in
Indonesia is very competitive. They are hard workers and have
good skill levels. I can say this because I once stayed in
Malaysia and the Philippines.

During the 1970s and 1980s, Malaysia and Thailand tried to
increase foreign investment by offering incentives such as tax
breaks. So they started earlier. During the time of Mahathir (the
former Malaysian Prime Minister), National (the Japanese home
appliances producer) came to Malaysia and set up an air
conditioning laboratory there.

That showed the difference between those countries and
Indonesia. But Indonesia will have a very good chance to grow.
You have plenty of natural resources, the quality of the people
is very good and the population factor is very important for an
industry like automobiles.

Currently, how much is HPM's local content?

Our local content is still about 30 percent, which is not
enough. To enhance local content, we must have good production
volumes, otherwise suppliers will not be interested in making
parts for us.

In 2002, our sales were only 20,113 units. It was not easy to
enhance local content with such small production volumes. This
year we are going to produce 53,000 units, so this is a good
production base. We are now encouraging our local suppliers to
produce parts.

Do you have any specific targets for increasing local content?

There is always a good time to increase local content, which
is at the time of model change. Prior to model change, we will
ask our suppliers to supply parts for us. So they need a certain
period to prepare themselves. We are targeting to increase local
content by about 10 percent when we change the model. But of
course, it is not easy.

Currently, we are using transmissions manufactured by PT Honda
Precision Parts Manufacturing, 100 percent owned by Honda Motor
Company, at its Karawang plant. We also internally manufacture
engine parts such as the cylinder block and cylinder head.

Of course, we use local tires, belts, seat belts, seat
materials, among other things. We also have stamping plants, not
only for internal consumption but also for export to countries
such as ASEAN, China and Taiwan.

Do you think local suppliers meet Honda's standards to supply
components?

The most important thing is to share the same vision. Earlier
this year we organized a meeting with suppliers and I told them
our plans. There is a good opportunity for us to grow together,
so let's work hard.

We also have regular supplier meetings, particularly for those
whose quality is slightly below our level. We have quality
improvement meetings for such suppliers.

How long do you think it will take for Indonesia to catch up
with Thailand?

Last year, the Indonesian automobile market showed growth of
36 percent, which was higher than Malaysia or Thailand. Of
course, the market size in Thailand was much bigger at about
620,000 units. Malaysia was some 485,000, and Indonesia was about
483,000.

I don't know how long it will take, but one fine day Indonesia
will become the largest automotive market in ASEAN. It depends on
how good we can grow.

Many investors have complained about legal uncertainties and
levies charged by the government and local administrations. Your
comment?

This situation will be much improved by leaders of the current
government. By developing the country, such issues will be
minimized.

Currently you are number five in Indonesia in terms of volume
of sales. What is this year's target?

First and foremost, we must obtain a certain market share to
heighten our (brand) recognition. I came here in October 2002. I
said that in 2005 we must achieve 10 percent market share.

In 2002, our market share was only 4.1 percent, and increased
to 6.1 percent in 2003 and 9.6 percent in 2004. Achieving 10
percent market share is our first target.

Of course if the market grows better, we will catch up. We
have invested US$5 million for further expansion of our painting
line, so from April onwards we will be able to produce 170 cars
per day.

It may not be enough, that's why now our factory in Karawang
is operating at full swing, and we are even working some
Saturdays, not every week though, to meet market demand.

If the market grows, we will be able to cope with the
situation. The majority of the cars are produced here in
Indonesia and there is also a portion coming from Thailand so the
total number will be sufficient to meet market demands.

Will the recent fuel hike affect your sales target?

The majority of our cars use Premium gasoline so I can say
that we are the least affected automotive player. One can also
say that gasoline price have also been hiked, but that we have
engines that consume less fuel than others. This is where we are
good.