'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.