The automotive industry of Indonesia is among the most important parts of the country’s manufacturing sector. Many of the world’s well-known automotive corporations have either opened manufacturing plants or expanded business operations to Indonesia. Indonesia has also been evolving from having the status of an export-oriented production center into a major sales market due to rising per capita GDP. Indonesia is the second-largest automotive manufacturing nation in Southeast Asia; it only ranks behind Thailand in this statistic. However, due to a high level of economic growth in recent years, Indonesia is expected to reduce the gap over the course of the next decade. Today, Indonesia primarily depends on foreign direct investment for the establishment of automotive manufacturing facilities. Most of this foreign direct investment is derived from Japan. Indonesia has also been making an effort to develop component industries which support its automotive manufacturing industry.
The Automotive Industry of Indonesia Today
According to the latest statistics, the expansion of domestic vehicle manufacturing capacity has not been in line with the growth of domestic and foreign demand for vehicles made in Indonesia. In spite of this fact, there are no major concerns about this situation because vehicle demand has ample room for growth in the years to come; Indonesia’s per capita vehicle ownership is relatively low.
Vehicle sales and economic growth are closely linked. When a country’s per capita gross domestic product (GDP) growth increased the purchasing power of the people of the country and the level of consumer confidence is high, many will become more willing to buy a vehicle. However, in times of economic difficulty, people tend to refuse the purchase of relatively expensive items such as vehicles. Such a correlation between domestic vehicle sales and economic growth has held true in Indonesia. Whenever the Indonesian economy has grown by a significant amount, Indonesian vehicle sales have increased accordingly. Similarly, whenever the Indonesian economy has faced difficulties, a decline in vehicle sales has been seen.
Vehicle sales in Indonesia, just as is the case anywhere else in the world, are also affected by fuel prices. Whenever the Indonesian government has raised prices of subsidized fuels in order to preserve the condition of the country’s economy, vehicle sales have fallen due to the reluctance of many to purchase vehicles when costs incurred on fuel would be high. Currency exchange rates also affect vehicle sales in Indonesia. Whenever the rupiah has been weak, imports have become more expensive. This affects vehicle prices and thus vehicle sales because in Indonesia, many vehicles and vehicle components need to be imported.
However, in general, from a macroeconomic and monetary perspective, vehicle sales across Indonesia in the years to come are expected to increase. There are several reasons for such being the case. Firstly, Indonesia has a rather low per capita vehicle ownership ratio which implies that there is much room for market growth as there will be many first-time vehicle buyers among Indonesia’s expanding middle class. Furthermore, the popular and affordable low-cost green cars are expected to increase vehicle sales in the country. The Indonesian Automotive Industry Association (Gaikindo) expects vehicle sales in the country to continue to steadily increase over the next decade.
Why One Should Start an Automotive Business in Indonesia
Indonesia is the largest vehicle market in Southeast Asia. It accounts for approximately one-third of total annual vehicle sales in Southeast Asia. Indonesia not only has a large population but also boasts of a rapidly expanding middle class. Together, these two factors create a significant consumer force which have caused many a prospective business owner to become interested in starting an Indonesia-based automotive industry.