European, US carmakers race Japanese in Indonesia

Western companies experiencing a slowdown in sales close to home are turning to Southeast Asia's biggest economy, looking to take advantage of both a burgeoning middle class willing to spend and an elite looking for high-end toys.

In 2012, Indonesia's car market grew 25 percent to a record 1.1 million units, closing in on Thailand, the biggest car market in Southeast Asia with 1.4 million vehicles, IHS automotive analyst Jessada Thongpak said.

But Indonesia, with its 240 million inhabitants, “will emerge as the largest market in the region from 2014,” Thongpak told AFP.

While Indonesia has enjoyed average growth of around six percent in recent years, car ownership is still at 45 vehicles per 1,000 people — compared with 145 percent in Thailand — leaving room for long-term growth in the market.

Indonesians are buying new motors in big numbers, with 288 new cars hitting Jakarta's roads every day, worsening its already crippling traffic and polluted air.

However, Western car makers complain they are losing out to Japanese firms owing to Indonesia's high tariffs on imported sedans and luxury cars and the absence of a free trade agreement. Japanese firms have the benefit of a trade agreement and no levies. Added to this is the fact European makers are subject to higher safety standards than their Japanese competitors.

The EU has been in talks with Jakarta on a deal to open its market and allow European firms to compete on a level playing field.

That comes as new-car registrations in Europe dropped 8.7 percent on-year in January to the lowest level for that month since 1990, according to the European Automobile Manufacturers' Association.

But progress is slow and brands such as Mercedes, BMW and Chevrolet, are upping assembly and output Indonesia to get around the taxes — cars face a 40-percent tax if imported as finished products but just 10-15 percent if put together in the country.

“All global brands are already in Indonesia and they are heavily investing and expanding their production capacity,” Thongpak said.

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