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Car makers shift focus to Indonesian market

Indonesia Correspondent Helen Brown looks at the expanding car and motorbike manufacturing sector in Indonesia.

For years China had been the world's fastest growing market for cars.

But not anymore.

Now the world's car and motorbike makers are shifting their focus to Indonesia.

And they are pledging tens of millions of dollars to expand production.

Indonesia correspondent Helen Brown reports.
HELEN BROWN, REPORTER: At the Honda factories on the outskirts of Jakarta, 18,000 motorbikes are rolling off the production line every day.

Indonesians have developed something of an obsession with owning a bike or a car. And the extraordinary growth is seeing factories like this working non stop to keep up with demand.

HAMDHANI, DIRECTOR OF PRODUCTION, HONDA: This is the biggest Honda motorcycle factory in the world. Not only in Asia, but also in the world.

HELEN BROWN: Eight million motorbikes and scooters were sold last year, and more than half of those sales were made by Indonesia's biggest public company, Astra International.

PRIJONO SUGIARTO, PRESIDENT DIRECTOR, ASTRA INTERNATIONAL: I think it will continue to grow up until somewhere 12 to 13 million because of the needs of having basic transportation.

HELEN BROWN: Poor public transport has made the motorbike or scooter the affordable alternative for getting around. And coupled with growing incomes, it means anyone who can afford a set of wheels is buying.

Astra also has a firm grip on the next stage in the market, it assembles cars for Toyota, a popular brand across the country. But it's coming up against some new competition. The world's top car makers have noticed the strength of the Indonesian market and they're now committing hundreds of millions of dollars to expanding or reopening car assembly plants in a bid to grab their fair share of what could be the world's next auto-hub.

MICHAEL DUNNE, CONSULTANT, DUNNE AND COMPANY: The big picture is this: the Japanese are entrenched, they're reinforcing their strength with new investments and bigger plants. At the same time the likes of Ford, GM, Hyundai, Volkswagen, are saying this market is too important to miss, we'll come in and set up plants too.

Both the Japanese and the competitors are moving at the same time.

HELEN BROWN: Indonesia's the fastest growing car market in the world. Around a million units are expected to be sold next year. It's become the next big thing as demand in China and India slows down and manufacturers look for new places to do business.

In one year, an unprecedented $2.2 billion worth of development was slated for Indonesia.

PRIJONO SUGIARTO: The good thing is that the middle class is also raising. Rising middle class, if you look at those who can spend between $4 a day to $20 a day, there are 30 million; and that they're really our customer.

HELEN BROWN: One major car company, General Motors, is returning after seven years to build a seven seater van.

Others are looking to a future demand for smaller, greener cars. And cars, such as the well known Datsun, a 70s icon, are making a return.

MICHAEL DUNNE: What Indonesia has working in its favour is that long term it will be the biggest market in ASEAN (Association of South East Asian Nations) and auto makers tend to like to build cars where they sell them. You will hear everyone say that.

HELEN BROWN: For motorcycles too, a strong industry has been established. Astra International sources 94 per cent of its parts locally. And it recently announced plans to build a fourth plant.

This factory produces the most popular model in Indonesia, there are 9,000 people working here and it operates virtually 24/7. But the most mind boggling statistic is that there are four conveyor belts and between them they produce a motorbike every six seconds.

While the future looks promising, both the car and motorbike manufacturers say there's one thing putting a dampener on the mood. The Central Bank's imposing a new rule that requires customers to pay a set minimum deposit. The move is designed to ease the rush for cheap credit.

HAMDHANI: We are worried about that because maybe this is the first time for us facing a changing like this. So we preparing for the worst. Yeah, that the market will be decreased by maybe 20 until 25 per cent.

HELEN BROWN: It's not known exactly how the new financial rules will affect the industry, and long term the future still seems bright. And very busy.

HAMDHANI: Maybe this is only small hurdles before the market get a new equilibrium and then they still growing.

HELEN BROWN: Big future ahead? This factory's going to stay busy is it?

HAMDHANI: Yes, I think so. And I hope so.
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