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Indonesia’s Automotive Components Sector

Being the world’s fourth most populous country, Indonesia is currently facing a time of uncertainties. There are various contributing factors, from sudden changes of policy from the local government, to the major economic slowdown of the giants, the US and China.  In this article, I will elaborate specifically on the impact towards Indonesia’s automotive components sector.

Looking at the current situation, Indonesia is in the right track of accelerating its automotive sector. The massive infrastructure development program across the country is now being constructed, major highways are built from Sumatera to Papua. With these highways, and the possible series of cut in fuel prices, the demand for automobiles and its supporting components will inevitable increased too. There is a great hidden opportunities that is about to be seen by companies within these sectors. But is it really true?

If we look at the following chart of auto production within the ASEAN region from the first three quarters of 2015, Indonesia only ranked second. It’s a surprising fact that apart from the massive number of Indonesian produced cars, and of course motorcycles, running in streets in all major Indonesian cities, the country still rank second after Thailand in auto production.     

Some of the challenges faced by industries are the human resource, infrastructure and materials required to produce a competitive product. In fact, the high demand for automotive in Indonesia is still not supported by adequate transportation facilities currently. Local companies are still waiting for the realization and completion of those infrastructure projects. Apart from that, according to Mr. Hamdani Salim, the director of Astra Otoparts, the lack of raw materials have caused Indonesian-made automotive components are not as competitive compared to countries such as China and India, as these countries have the processed raw materials needed to produce the components.

Local investors are also concerned on the sudden change of policy that is now displayed more often by the Indonesian authorities. For example, the policy for increasing the progressive tax rates of vehicle’s ownership. Another concern is that the slowing global and domestic economy is affecting the purchasing power of most Indonesian customers. While the foreign investors and institutional fund managers, at least in the recent weeks, show more interest towards the consumer and banking sector, instead of automotive and its supporting companies.

However, apart from all those uncertainties and challenges coming ahead, a research show that Indonesia will become the largest auto market in ASEAN in 2019, surpassing Thailand which currently dominates the region. And if we look at the chart below, we can easily spot the ever growing demand of auto market in Indonesia within the past 10 years. 

After a significant slowdown in 2015, the world’s economy is entering a great volatility in 2016, signified by declining oil prices and increased uncertainties in global politics. With the upcoming election and the rise of “controversial” presidential candidate in the US, more missile tests from North Korea, and the ever increasing military spending in China, the financial market is now in the brink of great recession, or if we look it from the positive side, in the beginning of great recovery. Either way, some countries will benefit from it. And Indonesia is definitely one of those countries.  With the proven resilience of Indonesia in overcoming several major financial crisis in the past, we can be assured that the minor crisis or “correction” happened in 2015 will not affect the growth of Indonesian economy, specifically the automotive component sector. And when we are still struggling with traffic jams everyday, we should be optimistic that things are actually going on well, and as time will prove it, it will.