Mercedes, Honda send wave of optimism across Indonesia's automotive industry

Mustaqim Adamrah and Benget Besalicto Tnb., THE JAKARTA POST, JAKARTA , 14 March 2009 

Amidst the worsening global economic downturn, major international companies are showing their confidence in Indonesia, as the country is forecast to be less negatively affected by the global downturn compared to neighboring countries. 

Germany's automotive giant Mercedes-Benz and Japan's Honda have recently both decided to make Indonesia their production base for multi-purpose vehicles (MPVs). 

Investment Coordinating Board (BKPM) chairman Muhammad Luthfi said Friday Mercedes was carrying out a feasibility study on the production of luxury multipurpose vehicles (MPV) in the country. 

The new Mercedes MPV models would include the Mercedes Viano, Luthfi said. 

"The global economic crisis has caused Mercedes-Benz to suffer declining sales in many parts of the world," he said. 

"However, it posted sales growth (last year) only in China by 17 percent and in Indonesia by 10 percent." 

Based on these figures, Mercedes believed there would be a strong demand in Indonesia in the near future, especially in the MPV class, according to Luthfi. 

The Indonesian premium MPV market is still dominated by the Toyota Alphard and Nissan Elgrande. 

Luthfi refused to cite the amount of investment planned by Mercedes here, but said Mercedes would use its existing completely knocked down (CKD) factory to produce the MPV. 

He also said Mercedes would spend around Rp 200 billion (US$16.95 million) this year to repair facilities in its factory. 

Mercedes' existing factory, located in Gunung Putri in Bogor, West Java, runs with an installed capacity of 20,000 units and annual production of around 3,000 units. 

In the global market, Mercedes has produced premium V-class MPVs including the Mercedes Vito and Mercedes Viano, which Indonesia has imported from Thailand in completely built units (CBUs). 

Lutfi said Mercedes' expansion plan also resulted from the free trade agreement recently signed between the Association of Southeast Asian Nations (ASEAN) and New Zealand and Australia. 

The deal, he said, would provide a big opportunity for the automaker to boost sales in those two countries by exporting the MPV vehicles from Indonesia. 

PT Mercedes-Benz Indonesia's deputy marketing director Yuniadi Hartono confirmed the investment plan. 

"But we could not yet mention the timeframe and the amount of investment for the new product," he said. 

He said the premium car market in Indonesia accounted for just 4,000 units per annum, or 1 percent of total national car sales. 

The Indonesian Automotive Industry Association (Gaikindo) forecasts sales of new cars, trucks and vans will decline by 32 percent to around 405,000 units this year from 603,774 last year as the full impact of the global economic downturn hits Southeast Asia's largest economy. 

Auto sales in January dipped 24 percent to 32,167 units compared to 42,489 in the same period last year. Toyota. with its affordable Avanza van, secured around 39,7 percent of market share, up from 32.3 percent a year earlier. 

Toyota's Japan rival Honda is trailing behind, selling mostly the popular city car the Honda Jazz. 

In a bid to boost its presence in the market, Honda has recently announced its plan to make Indonesia its Southeast Asia production base for the affordable Freed MPV. 

According to Gaikindo, more than 60 percent of the four wheeler market in Indonesia is still being dominated by sales of MPVs. 

Jonfis Fandy, the marketing director of PT Honda Prospect Motor, said Thursday that planned expansion into the affordable MPV market was part of the company's strategy to anticipate the rising demand for minivans in the next two years when the economy was likely to boom. 

"Now is the time to invest in the new market," said Jonfis, adding that realizing such investment now would be much cheaper rather than doing it later. 

Jonfis said for the first time outside Japan, the Freed would be produced in Karawang, West Java, and was scheduled for launch in June. 

The MPV will be powered by a 1,500 cc engine, while its body will possibly be similar to the higher class MPV Honda Stream. 

"But with its specific design and price, it'll create a new market," said Jonfis. 

"This is also part of our strategy to deal with the economic crisis that may cause a drop in demand. By creating this new market, we hope to at least maintain our total sales this year." 

He refused to detail the total amount of investment for the Freed. 

Gaikindo chairman Bambang Trisulo shared similar view with Jonfis that Honda's decision to expand now was particularly due to the current low cost of investment. 

"Due to the ongoing economic crisis, prices have been declining. That has made investing cheaper if you compare with investing in normal times. Companies that have money will make such moves now," he said. 

He cited the example of South Korea when it heavily invested in a number of key industries such as steel, dockyards and a number of infrastructure projects during the 1998 Asian financial crisis. 

"Several years after the crisis they were ready for the booming market," he said. 

Despite a forecast of declining sales, Bambang remains upbeat on the Indonesian automotive market because it performs better than that of the neighboring countries. 

"Despite the drop, however, it is still better than the other markets in this region. Not to mention the European and American markets, which have seen a very serious drop due to their ongoing crisis," he said.

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