Manufacturing and Logistics NewsPart 1 News: Growing Too SlowPart 3 News: Seven Winning Sectors

GM to Make Push for Indonesia Hub

Regional News

This is an article repost.

General Motors Co. plans to produce a seven-seat “people mover” van in Indonesia as part of a move to re-establish its presence in a surging market dominated by Japanese auto makers and eventually use the country as an export hub, according to a person close to the company.

The person said GM intends to build a plant near Jakarta capable of producing about 50,000 vehicles a year, with plans to turn it into a major production base for the region, taking advantage of Indonesia’s location to export cars cheaply to the rest of the Southeast Asian market. It wasn’t clear exactly when GM expects production in Indonesia to start.

“It is a key move” for GM to possibly position Indonesia as “a launching pad for GM vehicle export to other Southeast Asian markets like the Philippines, Malaysia and Vietnam,” the individual said. GM is expected to unveil its plan Friday.

GM’s new push in Indonesia shows the growing attractiveness of Southeast Asia’s largest economy and underscores the U.S. car company’s global search for growth to offset slowing sales in some of its key markets.

“The U.S. and European markets are slowing down, as is China, and auto makers are trying to de-risk their business and make sure they diversify their revenues,” said Ammar Master, Bangkok-based manager of auto-research firm J.D. Power & Associates.

The decision also represents a major score for Indonesia, which has the largest economy in Southeast Asia but has long struggled to attract major export-oriented manufacturing investments because of a reputation for poor infrastructure, red tape and corruption.

Historically, much of the region’s auto investment has flowed to Thailand, which used reliable infrastructure and incentives to lure auto makers in past decades and earn the country the nickname “Detroit of the East” until China also rose as a production hub.

But Indonesia has become more attractive in recent years because of its giant domestic market of more than 240 million people and as high commodity prices boost income in the archipelago, which is rich in coal and other natural resources.

The lowering of tariffs and other barriers to auto exports with the 10-member Association of Southeast Asian nations this year has also helped persuade more companies to invest in Indonesia.

According to Michael Dunne, an auto analyst who lives in Jakarta, car sales in Southeast Asia—home to more than 500 million people—are expected to hit 2.2 million vehicles this year, increasing to 2.7 million vehicles a year by 2015. Demand in Indonesia alone will likely total as many as 900,000 vehicles this year, making the country the largest and fastest-growing market in the region, Mr. Dunne said. Car sales in Indonesia are expected to surpass 1.2 million by 2015, he said.

“It’s that kind of growth, fueled by emerging middle-class buyers, that has grabbed global car makers’ attention,” Mr. Dunne said.

“The market feels like a smaller version of China five to seven years ago,” he added.

The Detroit auto maker abandoned the Indonesian market in the mid-2000s when it closed a small assembly plant near Jakarta. Analysts say GM was losing money at the time because of a lack of popular products. In Southeast Asia, GM currently operates a vehicle plant in Thailand and is gearing to beef up its manufacturing presence there by adding an engine factory.

GM isn’t alone in building or expanding vehicle-production capacity in Indonesia. Toyota Motor Corp. said earlier this year it plans to boost annual output capacity at Karawang plant to 140,000 vehicles from the current 100,000 by early 2013. Toyota minicar unit Daihatsu Motor Co. also has announced plans to set up a second plant in Indonesia. The two Japanese auto makers together have a combined Indonesian market share of more than 50%.

Hyundai Motor Co. of South Korea is considering the possibility of opening a car-assembly plant in Southeast Asia and has looked at Indonesia as a potential site, according to individuals familiar with the matter. A spokesman for Zhejiang Geely Holding Group Co. of China, meanwhile, said the Hangzhou-based auto maker is also keen on expanding manufacturing capacity in Indonesia. It currently operates a plant that produces a few thousand cars a year.

“It’s an important market for Geely, and we plan to expand capacity, but as far as how soon and by how much, no decisions have been made,” Victor Yang, a Geely spokesman in Hangzhou said.

The product GM plans to produce at its planned plant is a mode of transportation that is popular in the region: an affordable van with lots of seating capacity, large ground clearance and rugged suspension—popular features in an area with poor road conditions and large extended families.

The main challenge facing GM is whether its product could be seen as offering better value than cars by Toyota and Daihatsu.

“Matching or besting the very lean cost benchmarks set by Daihatsu and Toyota in Indonesia could be a tough task,” said Mr. Dunne, the analyst.

Write to Norihiko Shirouzu at [email protected] and Eric Bellman at [email protected]
By Norihiko Shirouzu and Eric Bellman
Source: The Wall Street Journal, Aug. 12, 2011
To view the original article, click here.

Comment here