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IND - General Motors (GM) Eager to Expand its Car Business in Indonesia

General Motors Company (GM), the American multinational holding corporation that engages in the automotive industry, aims to expand its partnership with China's SAIC Motor Corp by joining hands to enhance business activities in Indonesia. Recently, speculation emerged that both companies were drifting apart. However, both camps claim that the relationship has never been better. In fact, GM China and SAIC are opening four new plants in China which will add 1 million cars (per year) to the current production capacity of 3 million vehicles.

Currently, GM taps the Indonesian automotive industry through its Chevrolet car brand. Its factory in Bekasi (West Java) has a production capacity of 40,000 vehicles per year. In the first nine months of 2013, the company sold 11,400 Chevrolet units in Indonesia. As such, GM only forms a minor player in Indonesia's automotive sector. For comparison, Astra International (Indonesia's largest car producer) sold over 478,000 cars in the same period. But given the large potential in Indonesia, due to its expanding middle class, GM and SAIC are eager to expand its business in Southeast Asia's largest economy. In recent years, car sales in Indonesia have grown sharply and in combination with the currently still low per capita car ownership, there is no end to the growth in sight yet.

The exact business model that will be applied to expand business in Indonesia remains unknown (for example a contract assembly for SAIC or a GM-SAIC joint venture). At the moment, GM and SAIC are still exploring business opportunities in Indonesia.

Overview of Indonesia's Car Industry

Indonesia has been experiencing an unique and important chapter in its car industry history: the country is transforming from a mere production hub into a major car sales market. Low production costs (due to low wages and cheap land) made Indonesia attractive as a production hub, but with GDP per capita reaching over USD $3,500 in 2012, the country's rapidly increasing middle class has turned into a significant consumer force. Domestic car sales reached a record-high level of over 1.1 million car units in 2012, and has recently attracted increased foreign investment in the nation's car industry. Although it is expected that the industry will feel the impact of Indonesia's slowing economic growth as well as the macroeconomic policies that aim for financial stability at the expense of economic growth, Indonesia's car industry still has healthy prospects for the middle and longer term as the country's per capita car ownership is still relatively low, while per capita GDP continues to grow.

Toyota is Indonesia's clear market leader. Through a jointly controlled entity with the Toyota Motor Corporation, Astra International holds the exclusive right to sell Toyota vehicles on the Indonesian market. The country's second most popular car brand is the Daihatsu, which is also distributed by Astra International. As such, the company holds a powerful position in Indonesia's car market. Mitsubishi cars, the country's third most popular car brand, are distributed by Krama Yudha Tiga Berlian Motors.

Source: Opens external link in new windowindonesia-investments.com

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