[Kajian Post] Indonesia’s Future in the Automotive Industry?

 Oleh: Jalu Dibyo Sanwasi | Staff Divisi Kajian Kanopi 2012 | Ilmu Ekonomi 2011.

Indonesia has recently been hit by a little spark of positivity. Several vocational schools, locally known as SMK, students have successfully managed to assemble a working car. Although this is just a very small step towards massively manufacturing cars, I cannot help but wonder about the possibility of Indonesia, or any other nations for a matter of fact, entering the automobile industry. Besides the pride I as an Indonesian would feel if it happens, I suppose it would be a great boost for the economy. However, before proceeding into deeper predictions, lets take a look at the current state of the car industry.

Lets take a look at the European car industry. Firstly, the emerging economies have been fairly kind towards European luxury vehicles. The likes of Mercedes Benz, BMW, and even Volkswagen have seen a decent rise in market shares over the year due to the birth of a more affluent population within those emerging economies. Many new money are not satisfied with driving “just a car” anymore, and are looking for a more upper end vehicles to satisfy their lust for luxury. In other words, the current state of the luxury market is very prospectus.

However, the middle and lower end European car industry has a slightly different story. The likes of Fiat, Peugeot-Citroen, and other middle end car manufacturers have often shook hands with declining sales. The French maker Peugeot has been met with a loss of $92m. Fiat has also recently seen dark days with a loss of  €500m and are looking to create a global partnership in order to increase their competitive power.  With declining sales and rising losses, the middle end European car industry resembles a crippled and pessimistic industry that is waiting for their time to end.

So, where does all the average Joes who drive average Joe cars buy their cars? The East. Unsurprisingly, the Japanese and the Koreans have managed to dominate the middle end car industries. Despite the recent lost in profit created by the disaster in Japan, Toyota and Honda still manage to maintain their large market share. Hyundai, the underdog, has seen a rise of 38% of sales in China and USA. Undoubtedly, The East is the big boy within the industry. Despite the attempts made by American and European carmakers at entering this industry, Japanese and even Korean cars have still proved to be the most popular.

Now, what steps does Indonesia need to take in entering the global car Industry? Indonesia needs to choose whether to enter the luxury, the middle market, or both. Since no current car manufacturer has ever succeeded in conquering both markets, it is more realistic to choose one market.

If Indonesia wants to enter the luxury line, it has to face several obstacles. The luxury market is quite hard to get into due to the maker’s reliance on the recognition of their brand. People will usually put importance on brand over quality in this market. This makes it very hard for new comers to enter this industry. Nissan, Toyota, and Honda have all tried to enter this industry by releasing the Infinity, Lexus, and Acura. Only Lexus have managed to slightly succeed in this market.

On the other hand, the middle end market emphasizes on quality and price. That is why Honda and Toyota have successfully conquered this market. They have been able to create long lasting and fuel efficient with affordable prices. Europeans and American cars have so far been unable to provide those things. Will Indonesia be one day able to create such cars?   

Malaysia has tried to enter the middle end car industry through Proton.  At first, market shares were rather optimistic showing a 60% share in Malaysia. However, sales have declined and Malaysian market shares have fallen to 30%. In response to the fall, the government has sold 42.7% of its stake to DRB-Hicom, which is owned by billionaire Syed Mokhtar Al-Bukhary.

Based on history and the current state of Indonesia, I am a little pessimistic about Indonesia’s future in the global car industry. The global market is very aggressive and would pose too big of an obstacle for Indonesia. The local market also seems to be slightly out of reach. Unless Indonesia creates a top quality car –which is slightly improbable- or a very very cheap car, I don’t think Indonesians will choose to buy Indonesian cars over Japanese out of mere sense of nationalism. Hence, I think it would be a while before Indonesia has a chance in the car industry.


  1. Lady in red yang ketumpahan saos otak-otak23/3/12 13:18

    Nice writing. All the comparisons and examples are there already. However there's a lack of analysis on why exactly the Indonesian automotive industry will not be able to penetrate the market well. Those examples, in my opinion, are not representative enough to strengthen your argument. For the constructive, maybe you can add up a bit more analysis about the Indonesian automotive industry itself, internally. Like for example, since the government doesn't really appreciate or give that much attention on the development of cars industry such as what SMK is doing now --probably because they're just as pessimistic as you are-- then nobody is attracted to invest, therefore they will be lack of budget and hence fail to fulfill the need of the society, or even just to begin to develop it. In this writing you are trying to say how in the status quo there is not a chance for our automotive industry to develop, so that you are very pessimistic about it. Then make it as severe as it may seem, because that will strengthen your opinion regarding the issue. Sometimes drama is needed in order to attract readers, don't you think? Good day!

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