Automotive Development in Indonesia -
4 June 2023

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Automotive Development in Indonesia

If Indonesia is able and consistent to integrate with the large flows of global supply chains, then the automotive industry as a mainstay of the national economy is no mere dream

Talking about the automotive industry, in fact, the dynamics of the Indonesian automotive industry began almost a century ago in 1927. The forerunner of the automotive business began when General Motors established an assembly plant in Tanjung Priok in 1927, the second in Asia after Yokohama, Japan. The reason they chose Jakarta over Singapore was due to policy incentives. Decades later, in 1969 to be precise, William Soeryadjaja took over the General Motors 1927 factory from the state-owned PN Gaya Motor status which later transformed into one of the largest automotive business empires in Indonesia.

The potential of the Indonesian automotive market is enormous. With national economic growth above 5%, it is a distinct advantage for the Indonesian automotive industry sector, amidst the global economic slowdown. The automotive industry is one of the mainstay industries in the national industrial policy which also provides a large value in gross domestic product. Reflecting on 2016 alone, the automotive industry recorded a contribution of the transportation equipment industry sub-sector to GDP of the non-oil and gas industrial sector of 10.47%. Well, then what should be developed? This large market niche will remain large if the automotive industry players become the main actors. In fact, several APMs from Japan have invested in factories and local research facilities.

Such as Toyota, Daihatsu and other Japanese manufacturers. The goal, apart from producing competitive products, is also to reduce production costs. Looking at the Linear Market Potential with automotive products, the most potential domestic automotive market is Multi Purpose Vehicle (MPV) cars. The trend from year to year is increasing. From Gaikindo data alone, in 2016 MPV sales again increased by around 450 thousand units, compared to 2015 of 375 thousand units. In fact, cars concocted by the nation’s children have succeeded in becoming one of the mainstay exports of the national automotive industry sector to the global market. Take the example of Toyota, which has been doing business here for a long time. Since the presence of the first generation in June 1977, the total sales of the Toyota Kijang in Indonesia have so far reached more than 1,750,000 units and are the highest sales figures in the Indonesian MPV segment. The Kijang was also Toyota’s first model to enter the global market in 1987. It is no exaggeration, if the success of the Toyota Kijang opened up opportunities for the formation of the MPV market segment in Indonesia, which until now is the largest market niche in the national automotive market. Just look at Gaikindo’s data. The MPV segment controls nearly 50% of the national automotive market. Since the MPV market grew rapidly in the 1990s, this segment has become the most dynamic.

No less than 80 MPV models have entered the MPV segment, and until now only 20 models have been able to continue, including the Toyota Kijang. In 2016 alone, Toyota’s total sales reached 388,204 units. Of this amount, 249,253 units came from the sales of the MPV segment. Production Base and Export Mainstay Several manufacturers such as Toyota, Daihatsu, Suzuki, have already made local production of their MPVs. Even to export abroad. Meanwhile, Honda also exports, not in the form of vehicles, but parts of vehicles. In line with the increasing enthusiasm of domestic consumers and export needs, business expansion was carried out by adding factories and involving local engineers in the product development process to suit consumer needs and environmental conditions. Not only for their business interests, but also to support the Indonesian government’s program to have a strong automotive production base. And of course this is in line with the government’s decision regarding the necessity for the automotive industry in Indonesia to use domestically made components and local content in certain quantities.

As a big player here, Toyota Indonesia continues to increase local content from generation to generation. The local content of the car, which at its inception was known as “Indeed It’s Second to none”, has moved from 19% in the first generation Kijang to 30% in the second generation. The seriousness of increasing local content continues to be demonstrated by the addition of the localization ratio of Kijang to 40% in the third generation, then to 53% and 75% respectively in the fourth and fifth generations, up to the latest generation at 85%. Meanwhile, the number of local suppliers skyrocketed from 8 companies to 139 companies. Of course, this also has an impact on increasing import substitution and the workforce involved in production activities. “Kijang is an integral part of the history of the development of the automotive industry and a portrait of the socio-economic development of the Indonesian nation. The metamorphosis of the Kijang from a very simple form in the 70s to become a global quality vehicle as it is today is a reflection that the socio-economic conditions and industrial capabilities in this beloved country have increased rapidly over the last 40 years.

In addition, we have to admit that the Kijang is a pioneer and the backbone as well as a model that paved the way for other Toyota models to be produced locally,” said TMMIN President Director, Warih Andang Tjahjono. Kijang exports with an average volume of 50 units per month until 2013 increased significantly when exports of the 5th Generation Kijang, or better known as the Kijang Innova, provided an opportunity for Toyota Indonesia to have wider access to international markets. Now, 30 years since the first export, the volume and destination countries of the Kijang Innova’s exports have soared to around 1,400 units per month aimed at 29 countries in Asia, Africa, Latin America, the Caribbean, Oceania and the Middle East. Kijang Innova is shipped through a special whole vehicle terminal at Tanjung Priok Port which is equipped with modern physical and non-physical facilities to ensure quality control of Kijang Innova and other export products. In the century-long cycle of the Indonesian automotive industry, there is a historical uniqueness that General Motors has partnered with China’s SAIC to open a Wuling factory in Bekasi. This seems to remind us again of the 1927 phenomenon, when General Motors chose Tanjung Priok as the second General Motors car assembly location in Asia after Japan. Not to forget that Mitsubishi has also started local assembly of Xpander which is planned to be exported. If the government proclaims automotive as one of the main industries, then Indonesia must successfully integrate with the large currents of the automotive industry’s global supply chain. If all related parties are willing to seriously learn from the history of the ups and downs of the Indonesian automotive empire due to the swings of the policy pendulum, Indonesia will celebrate a century of the Indonesian automotive industry in 2027 as a mainstay of the national economy, with or without local brands, but able to become part of the global automotive supply chain.

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