Indonesia’s Automotive Parts and

Component Market

DATA CONSULT ‘S REPORT :

INDONESIA’S AUTOMOTIVE PARTS AND COMPONENT
MARKET

EXECUTIVE SUMMARY

Business Environment

• The past few years has undeniably seen substantial improvement in

Indonesia's macroeconomic performance. GDP growth is moderate yet
encouraging, inflation and interest rates are declining, the exchange rate is
stable and the stock market is buoyant. In 2007, for the first time after the
era of post-Asian crisis, domestic economy moved using two of its driving
forces: stability and growth. The economic growth continued to gather
momentum and reached 6.3% in 2007 as compared to 5.5% in 2006,
strengthened by improvement in household consumption and private
investment. Rising purchasing power and the availability of consumer
financing at reasonable cost, contributed to the increase in household
consumption.

• The interest and other monetary instrument rate continues declining

following the decision of BI (Bank Indonesia) to gradually lower the BI
Rate which was 8.0 % at the end of 2007 from 12.75% at the end of 2005.
Loan interest rates also eased, as indicated by the fall in the base lending
rate (BLR) from 15% at the end of 2006 to 12.92 % In February 2008. At
end 2007, interest rates for working capital credit and investment credit fell
to 13.01 % from the December 2006 level of 15.1%. The other lending rate
for consumption credit was recorded at 16.13 % in December 2007, lower
than 17.6% from December 2006.

• The World Bank remained strongly upbeat in its projection for Indonesia’s
2008 growth, in line with other East Asian economies. It expects
Indonesia’s economy to grow steadily at least through to the end of 2008 at
6.4%, following the estimated 6.3% in 2007. Bank Indonesia is also
positive about 2008 growth, though the bank expects the growth slowed
down to 6.3% , driven by slower growth of the global economy , pressure to
the inflation rate as a result of high commodity price.

• To stimulate the development of automotive component industry, the

government of Indonesia has taken several measures such as exempting

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Component Market

tariff for imports of materials used by automotive component industry,

namely for materials which have not been produced locally. Most of these
materials consist of flat steel products, aluminum and copper products.
However, this tariff exemption is valid only for one year until May 2008 and
is now under request by component manufacturers for extension. Other
measures include tariff harmonizations, improvement of certification
institutions, and development of special port for automotive

Automotive Component industry dominated by foreign investment

• Indonesia has been able to produce a vast range of automotive

components totalling around 150 items. The sector has a diversified
product range, comprising of casting, forging, engine, power-train parts
and components, electrical equipment, brake and clutch parts, hydraulic
and pneumatic systems, body panels, chassis frame and parts, seating
and safety components, suspension systems, fixings, various plastics and
aluminium parts, batteries and auto glasses. It should be noted however,
that these locally made components are still strongly dependent on
imported material / sub-components.
• There are around 400 companies involved in automotive component
manufacturers , however only 136 companies are members of GIAMM (the
Indonesian automotive parts and components association).The study has
identified around 250 medium and large scale component manufacturers,
of which 46 companies produce mechanical engine components and 42
companies electrical and electronic components. The biggest number of
companies involved in producing multipurse components such as bearings,
gaskets, gear, fastener, brackets, clamp, seal, hose, nuts and pins.

• The Indonesia’s automotive component industry is characterized by strong

domination of foreign investors. There are 180 foreign investment
companies as compared to only 70 domestic investment companies. As
the Indonesian automotive business dominated by Japanese makes, the
component manufacturing business also dominated by Japanese
companies . Of the total 180 foreign companies involved in automotive
component industry in Indonesia, only 10 companies which have no
connection with Japanese companies. The remaining 170 companies
are Japanese joint venture or 100 % Japanese companies. They
represent well-known Japanese brands in their business lines such as
Denso, Toyota Tsusho, Aisin Seiki, Daihatsu Motor Co., Honda Motor
Co., Bando Electric Co., Izumi Industries, Nittan Valve, Kayaba Industries,
Sanden, Yuasa Corp, Daido Kogyo, Fujita Crankshaft etc

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• However, in recent years, a few investments from non-Japanese 1st tier

suppliers entered the country. For instance, Delphi of the USA has
invested in wiring harness industry in Indonesia. The majority of pure local
companies are in the 2nd tier, 3rd tier and in the AM ( after market )
business.
• The domestic component industry produce components both for
automobile and motorcycle. Data from GIAMM members shows that
there are 14 companies specially produce components for motorcycle , 30
companies produce components both for motorcycle and automobile and
91 companies produce only components for automobiles.

• The study has identified around 250 medium and large scale component
manufacturers, of which 46 companies produce mechanical engine
components and 42 companies electrical and electronic components. The
biggest number of companies involved in producing multipurse
components such as bearings, gaskets, gear, fastener, brackets, clamp,
seal, hose, nuts and pins. A single company may produce more than one
category of components.

• With a registered car population of 14.4 million and motor cycle popualtion
of 33.2 million at the end of 2005, Indonesia provides a big market for
automotive components, either for OEM or for after market / replacement
market ( REM). Over the last three years, increase in car population from
new cars totalled around 430,000 , while motorcycle around 4,800,000
units per year.

• Eventhough domestic component industry has developed quite well,

imported components still plays a dominat role in the market. Due to
limited market size, not all of parts and components can be produced
locally in sufficient amount to justify the economy’s of scale. The domestic
component industry still strongly relies on imported sub-component and
parts , therefore the statistic office still recorded a big volume and value of
components and parts imported into Indonesia.
• The domestic market size of automotive components reached its peak at
around US$ 7.8 billion in 2005, following the robust production of car from
around 420,000 in 2004 to more than 500,000 units in 2005 and motor
cycle production from around 4.2 million in 2004 to some 5.1 million units in
2005. Unfortunately, the market size of components experienced a set
back in 2006, resulted from sluggish automotive production due to 126%
fuel price increase in October 2005. The study revealed that the domestic
market size of automotive component rose from around US$ 3.6 billion in

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Component Market

2002 , reached its peak at US$ 7.7 billion in 2005, slumped to US$ 5.4
billion in 2006 , but rebound to US$ 6. 38 billion in 2007.

Import and export soaring

• The import statistics show total imports of automotive components

fluctuated from US$ 2,042 million in 2002 to US$ 2,788 million in 2004, hit
its peak at US$ 3,445 million in 2005, but dropped to US$ 2,811 million in
2004 following slackened automobile industry. Driven by strengthened
automobile and motorcycle industry, imports of components recovered to
US$ 2,972 million in 2007.
• Imports of mechanical engine components accounted for 31 % ot total
imports representing the largest imports of components in 2007. The
second and third largest components imported are power train ( 13.2%)
and multipurpose components ( 11.8%). Other major group of components
imported are wheel/ tire components and electrical components.
• In 2007, the largest amount of imported components was for parts for
spark-ignition type engines ( HS 840991), totalling US$ 386.3 million,
followed by motor vehicle parts and accessories ( US$ 297 milllion) and
part forf diesel and semi diesel engines ( US$ 190.5 million). Top twenty
imported components totalled US$ 2.2 billion orf around 74 % of total
import in 2007.

• Japan is the biggest supplier of components and parts to Indonesia. Of the

total import of some US$ 2.8 billion in 2007, some US$ 1.9 billion ( 49 %)
from Japan. Thailand has emerged as the second largest supplier
accounting for 15% of total import and toppled the USA which used to be
the second largest supplier of automotive component to Indonesia. This
phenomenon is driven by the fact that many multinational automotive and
component industries have built their production base in Thailand.

• Indonesia ‘s export of component has developed markedly from only US$

1,106 million in 2002 , rose to US$ 1,793 million in 2004, and almost
reached US$ 3 billion in 2007. Remarkable growth of export was
experiennced by power train components. Export of this component rose
from only US$ 32.7 million in 2002 to US$ 381.4 million in 2007.

• Export of wheel and tire components is the primemover of the substantial

growth of Indonsia’s component exports. Export of this category soared
from some US$ 404 million in 2002 to US$ 1,113 million in 2007. As

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shown by the followin table , export of pneumatic tire rose markedlhy from
US$ 237 million in 2002 to US$ 751 million in 2007.

• The share of export to total sales was about 20% in 1999-2001 period,
while in 2006 and 2007 , their share has doubled to more than 45%. Over
the last 7 years, export of automotive components enjoyed an average
growth of 22.2 % a year.
• Exports of components from Indonesia are mainly done by companies
connected with international brand of automotive components, particularly
from Japan. Some of the components are exported to their own
associated companies in several countries.

• While Japan and Thailand are two largest exporters of automotive

component to Indonesia, these countries also main importers of
Indonesia’s exported components. This phenomenon reflected strong
influences of multinational companies in the regional trading of
automotive components. The bulk of the inter-regional trading in
component is actually controled by these multinational companies. They
have strong influence in deciding from which country they get the supply
and to which countries they will sell the components.

• In 2006 total component export to Thailand totalled US$ 321.3 million

dominated by HS 8708 ( Parts and accessories for motor vehicle), HS
8414 (Air / gas compressor) , HS 8483 ( Transmission shafts&cranks,
bearing housing; gearing ) and HS 4011( pneumatic new tire from
rubber). In the meantime, export to Japan totalled US$ 521 million or 19%
of total export of components in 2007. The third largest export destination
was the USA amounting to US$ 300 million or 11% of total export.

• Beside other Asian countries , the main destinations of Indonesia’s

components are also Middle East Countries. Three major importers from
Middle Easts are Saudi Arabia, United Arab Emirate ( UAE) and Egypt.
The three countries contributed 6.3% of total component exports of
Indonesia. The main components exported to these countries are tires
and tubes and batteries. In 2006 UAE imported tires totalling US$ 53
million, while Saudi Arabia US$ 48 million and Egypt US$ 25 million.

• Despite increasing export, the market share of Indonesia’s component in

the main country of destinations is still relatively still small.. For illustration,
Japan imported a total of US$ 4,495 million value of HS 8708 components
( parts and accessories) from around the world in 2006, while its import

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from Indonesia totalled only some US$ 203 million, or about 4.5% of the
total Japanese import of this component. In Thailand, the shares of
Indonesia’s product for HS 8708 was 5%. Quite a notable share was
achieved by Indonesia in Malaysian and Vietnam market.

• While for HS 8708 product category , Indonesia still plays a small role, in
the market for HS 4011 ( pneumatic rubber tire), Indonesia is quite leading
in several countries. For illustration, in Japan, Indonesia controlled 22% of
their total import, while in Thailand 32% and Malaysia 16%.

Automobile industry encouraging

• The demand for parts for vehicles is the aggregate of the demand for
original equipment parts used in the process of assembling new cars
(OEM or Original Equipment Manufacturers) and the demand for parts in
the after-market (original or OES and non-original). The demand for parts
has a very direct relation with the sales of vehicles.

• The country’s automotive industry has revived with a big pace since 2003
and touched its peak in 2005 with a total production of 500,710 units.
Although, the production slackened in the following years due to 130% oil
price hike in late 2005, but the industry is optimistic on the rebound of their
production because of strengthened market demand. In 2006, car
production dropped to 296,008 units but recovered to 411,638 units in
2007. In 2008, the industry is expected to resume to around 500,000 units.

• Total car sales rose from 317,780 units in 2002, to 354,355 units in 2003,
485,148 units in 2004,and hit its peak at 533,913 units in 2006. In 2006,
the sales dropped to 319,000 units, but recovered to around 433,000 units
in 2007. In 2008, sales are expected to rebound to more than 500,000
units.

• There are favorable factors contributing to high performance of the

country’s automotive industry in 2003-2007 - first improved economic
condition marked by Rupiah stability, low interest rate, steady growth of the
economy at 5.5-6.2% – increasing purchasing power, second relatively
stable security and political condition and – third facility offered to
consumers to buy cars on credits .

• Increase has been recorded in the production of all types of cars. Most
impressive, however, was in the production of Multi Purpose Vehicle ( MPV

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Component Market

4x2 type ) particularly of CC< 1,5 lt , 1.5 lt<CC<30 lt In these categories

include Toyota Kijang Inova, Toyota Avanza, Daihatsu Xenia, and Suzuki
APV, and Mitsubishi T120. Car production of this type rose 43% from
197,343 units in 2006 to 281,763 units in 2007.

• The largest car assembler is Astra International (Astra Group) followed by

Indomobil Suzuki Internasional (Indomobil Group) and Krama Yudha Tiga
Berlian. Astra group represents several wellknown brands i.e. Toyota,
Daihatsu, Isuzu, Peugeot, and. Nissan Diesel . Indomobil group
represents Suzuki, Hino, Nissan, Mazda, Renault, Ssyangyong and others.
Krama Yudha Tiga Berlian represents Mitsubishi.

• Japan’s automotive industry has rooted deeply in the country. Japan has
played the host in the country in the automotive industry. Toyota,
Mitsubishi, Suzuki, Daihatsu, Isuzu, Honda, Mazda, Hino, Nissan and
Nissan Diesel have been as popular and familiar in the country as in
Japan

• In the past three years, three automotive giants Toyota, Mitsubishi and
Suzuki, have continued to dominate the domestic market. In 2007, Toyota
strengthened its lead with sales totaling 150,631 cars, followed by
Mitsubishi with sales 61,548 units and Suzuki 58,095 units.

• In the second layer are Daihatsu, Honda and Isuzu .While Honda stays
close to Daihatsu , Isuzu is far behind due to weakening competitiveness of
their Isuzu Panthers .

• Toyota enjoyed a total 35 % share of the market in 2007, slightly dropped

from 38% in 2006. Mitsubishi in the second position controlled 14 % of
the market in 2007 and Suzuki 13.4 % in 2007.

Motorcycle industry soaring high

• The domestic motorcycle industry has increased dramatically over the

last 7 years. In 2001, production to 1.91 million units and in 2003 it
totaled 2.8 million units , jumped to 3.8 million units in 2004, and hit its
peak at 5 million units in 2005. The production did not include Chinese
products assembled by the new players. High increase fuel price in
October 2005 has contributed to the drop of production in 2006, which was
only 4.47 million. However, in 2007, the production recovered to reach 4.7
million.

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• The fast growth of the motorcycle industry is attributable partly to support

from multifinance companies facilitating purchases with credit. Leasing or
consumer finance companies offer attractive credit to buy motorcycles both
those produced by AISI ( The Association of Indonesia’s Motorcycle
Manufacturers) members and non AISI producers.

• The country’s motorcycle industry has advanced into the level of full
manufacturing industry with products already having a local content of
90%. The components which are still imported are carburetors, clutches,
bearings and sub components like special bolts, special forged material,
piston ring and other small components.

• The country’s main producers of motorcycle are members of AISI (The

Association of motorcycle industries). They are PT Astra Honda Motor (
Honda), PT Yamaha Indonesia Motor Manufacturing ( Yamaha), PT
Indomobil Suzuki International ( Suzuki,) PT Kawasaki Motor Indonesia (
Kawasaki ) , PT Kymco Lippo Motor ( Kymco) and PT Semesta Citra
Motorindo ( Kanzen). Two latest companies are assemblers of Korean
brand motorcycles. Another member of AISI is PT Danmotor Vespa
producing Vespa scooters. However, the latest company is not so active,
because its market has been shrinking gradually over the last ten years.

• PT. Astra Honda Motor (AHM) started the operation of its third factory in
Cibitung, Bekasi in October 2005. This third factory has an annual
production capacity of 1.2 million units. With the additional capacity, AHM
has now an annual production capacity of 3.2 million units. AHM already
has two factories – in Sunter and Pengangsaan Dua, North Jakarta with a
total installed capacity of 2 million units a year.

• Despite aggressive market penetration of several Chinese brand

motorcycles and other brands from Korea, over the last five years,
Japanese brand motorcycles have been able to keep their strong
domination in the market. In fact, low price -Chinese motorcycles are
now very difficult to stay in the market.

• Three largest Japanese brands in the market, Honda, Yamaha and Suzuki
controlled 98% of the market with Honda as the leader with 45.7% share.
It is interesting to note that in 2007, Honda lost its share by 7.4 point ,
from 52.3% in 2006 to 45.7%. Meanwhile, Yamaha has strengthened their
position as the second largest brand with its share increased from 33% to
39%. The success in marketing Yamaha Mio “Skutik” (automatic

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transmission motorcycle), has great contributions to soaring market share

of Yamaha in 2007.

• The sales data released by AISI shows that there was some drastic
change in the market structure of motorcycle . The sales of automatic cub
,known as “Skutik” has soared in the last three years from only 191,600 in
2005 to 385,500 units in 2006 and surged to 873,900 units in 2007.

• The prospects of motorcycle industry in the country are still encouraging

although the growth is not expected to be as fast as in the past few years
to recover and continue growing.

Key players in automotive components

• Major component manufacturers are mostly connected with major group of

companies in automobile / motorcycle business. Because of previous
government “ Automotive deletion program”, car assembling companies /
sole agents set up their own automotive component manufacturers to
support their car assembling operation For illustration, PT Astra Otopart
Tbk ( AOP), is the hand of Astra Group in component business. Beside
having its own component manufacturing business, AOP is also a parent
company of some 27 subsidiaries and associates. Several subsidiaries of
AOP is also a major automotive component business, such as PT Denso
Indonesia, PT EDS Manufacturing, and PT GS Battery .

• PT Astra Otoparts Tbk (AOP) manufactures and distributes a wide range of

automotive components both for domestic and overseas market. The
partners for their component business include Japan Storage Battery Co.
Ltd., Aisin, Akebano, Denso, Izumi, Yazaki, Kayaba Corporation of Japan
and SKF of Sweden.

• There are 16 subsidiaries and associates of Indomobil group involved in

component manufacturing. There are involved in engine and stamping,
wiring harness, steering columns, tire , electrical components etc.
Indomobil group is the second largest group in automotive in Indonesia
with its brands : Suzuki, Nissans, Hino, Mazda, Renault, Volvo, Audi,
Ssangyong and Volks Wagen (VW). Beside, Indomobil Suzuki
International, major component companies under this group is PT Sumi
Indo Wiring System, PT Jideco Indonesia and PT Indo VDO instrument,
and PT Yamatogomu Indonesia.

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• ADR group is one of groups prominent in automotive components without

having ownership connection with car assemblers or sole agents. ADR
group has 5 companies producing components . The prominent company
within this group is PT Selamat Sempurna Tbk, a publicly listed company.
In January 2007, other member of the group, PT Andhi Chandra
Automotive Products, merged into PT Selamat Sempurna Tbk. In 2006,
PT Selamat Sempurna gained a total sales turnover of some Rp 881
billion. In the first 9 months of 2007, their sales totalled Rp 794 billion.

• In addition to supplying the local automotive manufacturers, domestic

component manufacturers have increased their penetration in the export
market. While in 1999-2001, the share of export to total sales was about
20% in 2006 and 2007 , their share has doubled to more than 40%. The
substantial growth of component export was also influenced by global
sourcing strategy of major automobile players. As the automobile industry
is becoming more and more standardised, the production base of most of
the giant auto-companies is being moved from the developed countries to
developing countries, including Indonesia.

• Although, automotive component industry in Indonesia is quite developed

as indicated by growing domestic and export sales, but the industry is still
largely dependent on technical assistances from overseas. Almost all
major component manufacturers operate with technical assistance either
from their foreign partners or from third party based on production license
agreement etc.

• Quite a number of Indonesia’s automotive component manufacturers

have obtained IS0 9000/ 14000 certifications which are required for
supplying to automobile / motorcycle industry as first tier suppliers.
Holding this certification is also important to serve OEM market both in
domestic or export market. In 2006 , there were 31 companies acquiring
ISO/TS 16949 which are required for exporting to Europe and the USA.

Materials for components

• Automotive-component production involves a multitude of inputs, including

steel and steel alloys of various gauges, aluminum, brass, copper, resins
for molding, rubber and rubber compounds, and various densities and
compositions of foam and paper products for filters.

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• Steel accounts for the bulk of the materials (around 60-70%), while plastic,
aluminum and other materials accounts for the remaining 30%. According
to University of Indonesia expert in composite materials, around 55% of the
steel components consists of carbon steel and 15% special alloy steel.

• There are three categories of steel used by the automotive industry -- flat
(hot/cold rolled and plates for making vehicle bodies), long (used for
making forged components) and pig iron (used by foundries for making
cast components).

• Indonesia has a limited capacity in steel production. Iron making,

steelmaking, hot and cold rolling are all inadequate and in an unbalanced
state. The region has long been relying on imported steel. The problem is
not only in term of quantity, but also quality: downstream industries in the
region depend on imported high quality steel. Automotive industry (car,
motorbike) has been enjoying a booming time in the region but they rely
greatly on steel imports, mainly from Japan. Only a fraction of steel needed
has been sourced domestically, mainly because of quality reason.

• The recent price increase in steel has sent shivers down the spine of the
steel consuming industry including automotive industry as it witnessed a
price hike of 25 per cent during the last three months.

• The price of HRC (Hot Rolled Coil) already recorded a high level of US$
710 per ton in January 2008, from only around US$ 500-600 per ton in
2007 . In March 2008, the price soared to around US$ 1000 per ton.
Meanwhile CRC price soared to US$ 1100 per ton representing growth of
more than 40%. The rocketed price was driven by 100% increase in iron
ore price from only US$ 113 per ton ( January 2008) to US$ 229 per ton (
March

• The steep prices of steel have given the auto industry a tough time. Major
car manufacturers like Toyota , Suzuki and Mitsubishi has announced their
plan to increase the price of cars at around 2-5% in May 2008. The
industry is quite confident with this level of price hike , the market demand
won’t be much affected.

• Despite the selling price increase , the soaring steel price and other
inputs including high fuel price is likely to reduce the profitability of
component manufacturers.

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• As the automotive industry addresses environmental concerns, the

problem of fuel consumption and weight reduction has come to the fore.
Reducing the weight of automobiles is one of the primary means by which
their fuel consumption is lowered. There has been a trend toward the use
of light metals and their alloys in automotive components, particularly
automotive bodies. The most commonly used materials are aluminum,
magnesium, and their alloys, though some research has also been done
on the use of titanium, zinc, and nonmetallic materials.

Market segmentation

• The market for parts and components can be divided into two main
segments: the supply to the “original equipment manufacturer”, known as
the OEM market, and the after-market ( AM) . Both markets depend on
developments in the vehicle market.

• Data of GIAMM ( The Federation of Automotive Component

Manufacturers) indicated that before the economic crisis ( 1997), the
domestic component market consists of 60% OEM and 40% AM. However
during the worst economic crisis ( 1997-1999), the composition was
reversed, where AM constituted 60% of the market share, while OEM 40%.
In 2007, the composition of the market is 55% AM and 45% OEM . Please
note that in addition to domestic market, local component manufacturers
also export their products. Export share has been gradually increasing
over the last 5 years.

• The market value of OEM is estimated at around US$ 1.63 Million in 2002
, rose to US$ 3.8 billion in 2005 . The year 2006 has been quite turbulent
in the OEM market when the market slackened to US$ 2.3 billion from
previous year. . After sharp increases in car production in 2004-2005, the
production dropped drastically in 2006 . Following the recovery of car
production, the OEM market rose to US$ 3.1 billion in 2007.

• The after-market ( AM) or some times refer to as Replacement Market (

REM) consists of all products needed for maintenance, repairs and
improvements. Demand for replacement parts depends on the use of
automobiles and other motor vehicles, as opposed to new sales thereof.
Demand is thus likely to be more stable in the market AM segment than in
the OEM. Based on the study on the total market value of component, the
after-market is estimated to have been around US$ 2.3 billion a year in

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2002-2004, rose substantially to around US$ 3 billion a year in 2005-

2007.

• In the after market, the component can be classified into four types based
on the level of genuinity i.e. Genuine products, OES ( Original Equipment
Supplier) products, Substitute Products, Faked ( counterfeit) products.

• In the after-market, original equipment parts compete with non-original

equipment parts. Nonoriginal parts are often mass-produced parts that
have to be replaced quite frequently, like tires and exhausts. Because of
the absence of large investments in research and development, non-
original parts are marketed at a substantial lower price. Original equipment
is pre-dominantly marketed through the authorized dealer channel. More
complicated parts, like engine or transmission parts, are not available
within the non-original segment.

Global and regional perspective

• The automobile industry is one of the fastest growing sectors in the world.
It has dynamic growth phases explained by the nature of competition,
product life cycle and consumer demand. Today, the global automobile
industry is concerned with consumer demands for styling, safety and
efficiency; and with labor relations and manufacturing efficiency. The
industry is at the crossroads with global mergers and relocation of
production centers to emerging developing economies. As the automobile
industry is becoming more and more standardized, the production base of
most of the giant auto-companies is being moved from the developed
countries to developing countries. Standardization is making production
more profitable in developing countries due to low cost of labor.

• Strong economic growth coupled with low car ownership rates and rising
incomes has turned Asia into a gold mine for the automotive industry. The
eventual shift in OEM's and auto-parts manufacturers focus toward Asia
has led to a rapid growth in vehicle assembly in many parts of Asia, most
notably China, India and South Korea. Thus, many countries in Asia are
making a serious effort to grab this opportunity that include Thailand, India,
China and Indonesia.

• Multinational vehicle manufacturers have not only become a prominent part

of the Asian components industry supply chain but have also started using

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the local Asian suppliers for their regional and global component needs.
Although targeted initially at servicing the burgeoning local vehicle
manufacturing sector, new investments by suppliers could also become
future substantial low-cost export bases for components.

• ASEAN is a key strategic automotive market. There are many reasons for
these. ASEAN population is around 570 million. Young population is the
major share from this figure. Currently the car sales in this region have
been increasing every year. For the year 2005 the sales is estimated at
2.1 million, and JAMA ( Japan Automobile Manufacturers Association )
projected that the demand will reach 2.6 million in 2010. With this amount,
this region is the fifth largest in the world for car sales .

• Gross Domestic Product (GDP) growth in Asean economies will maintain a

Compound Annual Growth Rate (CAGR) of over five percent over the next
five years (2005-09). It is this economic growth, combined with low car
ownership rates and rising incomes that is making Asean countries a bright
spot in the automotive industry causing major vehicle manufacturers and
component manufacturers alike to focus on the region as never before.

• The South East Asia region including Indonesia has cost advantages in
terms of low labor cost and relevant labor skills. This is further reinforced
by the region’s liberalization policies as well as its access to e-commerce
and other technology.

• With the implementation of the ASEAN Free Trade Area by the year 2015,
top car makers are already positioning for the huge integrated market that
offers preferential tariff of zero to five percent.

• Automotive components is one of export products of Asean countries

which experienced a high growth over the last 5 years ( 2002-2006). Their
export growth rate for each category of products varies from the lowest of
16% our highest 51% a year. It should be noted however, that a
substantial amount of the export is actually an intra-Asean trading . In
2006, export among Asean countries total around US$ 5 billion which is
about 30% of total Asean export of automotive components.

• Indonesia has been quite successful in expanding its exports, with

average growth rates of 22.2% a year over the last 6 years from US$ 1.1

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Component Market

billion in 2002 to around US$ 3 billion in 2007. Despite its remarkable

growth, however, Indonesia’s exports was only a half of Thailand’s export
of automotive component which just developed its automotive industry
several years after Indonesia . Industry sources said ,that the inconsistent
government policy in automotive industry was one of the reasons why this
industry has developed slowly particularly in the beginning of 1990’s.

• According to the Chairman of GIAMM ( The Association of Automotive

Component Manufacturers), local component manufacturers will be ready
to compete when AFTA comes in full force in 2015. At that time,
Indonesia will have large automotive market that need a big amount of
components. The big demand will create the potential for efficient,
locally based component industry that increase their competitiveness in
the local as well as export market .

• According to GIAMM, supportive tariff harmonization scheme , is one of

key success factor for Indonesia to compete in the export market . The
recent government policy to exempt the import duty for raw materials used
in the component production is considered effective in improving the
competitiveness of local products. With relatively low labor costs and raw
material advantages, Indonesia should be able to compete with
neighboring countries like Malaysia and Thailand to capture larger share
in the export market.

• The opportunities to supply to other Asean countries is also quite

encouraging as the share of Indonesia’s products is generally still small in
Asean countries. In addition to Asean countries, the current largest
importers of Indonesia’s automotive components i.e. Japan and the USA,
are still prospective market for Indonesia. At present, the Indonesia’s
share in these countries are still small. For category of “parts and
accessories” of HS 8708, Indonesia’s share was only 4.5% in Japan and
0.3% in the USA.

• The development of automotive sales in the first quarter of 2008 has sent a
positive signal and optimism to the industry players. In the first quarter of
2008, the total sales of automobile experienced an impressive growth of
62% from the same period last year from around 105,000 units to around
136,000 units. Motorcycle sales are also encouraging totaling 1.43 million
units or rose 35% compared with the same period. Based on the strong
demand performance in the first quarter of 2008, Industry sources predict

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Component Market

that car production in 2008 will be larger than 500,000 units, namely
around 520,000 units, or 23% higher than sales of previous years.

• The government has made a projection that car production will touch
1,000,000 units in 2010 and 1.65 million in 2015. Some observers said
that this projection is too optimistic, but an executive of major automotive
company, Astra Daihatsu Motor ( ADM) sees that the target is quite
realistic and export will contribute largely to the growth of car production.
In the

• Export of cars will be one of key drivers to the growth of car production
over the next five years. Export of CBU ( Completely Built UP) cars has
experienced an impressive growth of 90% in 2007 , from around 31,000
units in 2006 to 60,267 units in 2007. In addition , Indonesia also exported
105,000 sets of CKD ( Completely Knocked Down ) cars in 2007 . In
2008, the export of CBU cars is expected to exceed 100,000 units and
CKD to reach 148,000 sets .

• The Ministry of Industry has set a target to export 300,000 CBU cars in
2010. The government has taken several measures for achieving this
target. This includes exempting import duties for motor vehicle parts to be
assembled for export.

• The automotive component market has been experiencing a high average

growth rate of 16 % per year over the period 2002-07 . The domestic
market is expected to increase further at a rate of 12-18 per cent per year
over the period 2008-2012, driven by strong growth of the domestic car
industry, which is growing at a spanking rate of over 15-20 per cent, driven
by a rising consumer base and affordable loans, and expected growing
export market. The domestic market is projected to amount to US$ 7.7
billion in 2008, rose to US$ 9.87 billion in 2010 and at about US$ 13 billion
in 2013.

• Assuming that 45% of the total market of components is for after market,
the size of this segment is US$ 3.4 billion in 2008, US$ 4.2 billion in 2010
and US$ 5.5 billion in 2012.

• In Indonesia, the competition in all sectors of the industry will escalate as

more global manufacturers enter the market. Planning for a long term
market growth, new entrants will strive to penetrate into the market while

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 Indonesia’s Automotive Parts and
Component Market

existing ones solidify their market position. Japanese affiliated assemblers

and parts manufacturers will continue providing support to strengthen their
operations in Indonesia.

• Included as a part of all the world majors’ global strategy, Indonesian

vehicle industry will progress along the worldwide industry trends. While
these global industry trends emerge to meet the needs of world vehicle
manufacturers, they will have impact on the parts manufacturing industry
particularly those small independent part manufacturers.

• Guarantee of security, political stabilization, and a healthy competitive

climate are some of the factors that should be ensured by the Indonesian
government. Without the immediate fulfillment of those factors, it would be
difficult to attract investors to Indonesia.

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