The third-largest car market in Southeast Asia

JAKARTA - Indonesia's automotive industry is booming. Easily obtainable credit and low interest rates, coupled with a strong increase in consumer lending by banks and an abundance of new, low-priced models assembled locally, have fueled a car boom that shows no signs of slowing down.

Figures from Gaikindo (the Association of Indonesian Automotive Manufacturers) show that around 483,000 cars were sold in 2004, up 36% on 2003, with sales growing at a pace second only to China. Indonesia is now the third-largest car market in Southeast Asia after Thailand, where an estimated 620,000 cars were sold, and Malaysia, with some 485,000 cars sold last year. This year's first-quarter car sales increased by 38.5% to 93,627 from 67,595 in 2003 and Gaikindo predicts around 530,000 units will be sold by the end of the year. Increased demand could see sales reach 1.3 million cars a year by 2010.

Poor infrastructure, legal uncertainty and a lack of tax incentives have been blamed for declining foreign investment in the sector, but still it remains a key pillar of the economy with investments totaling more than US$7 billion and generating employment of over 300,000. The economy expanded by 5.1% last year, mainly spurred by consumption, and is expected to continue on track, spurring hopes of continued demand for cars.

Car manufacturers across the globe are competing in Indonesia, but domestic manufacturers are little more than assemblers for foreign car makers. International players control 90% of the market, with the rest shared by the US, European and Korean imports, the majority from Europe. Like several other regional markets, Japanese manufacturers have the lion's share of sales. In 2004, Japanese brands (Toyota, Mitsubishi, Suzuki, Isuzu, Daihatsu, Honda, Nissan, Hino and Mazda), either locally assembled or imported, accounted for 81.5% of passenger-car sales.

The homegrown automotive giant, publicly listed PT Astra International, is 42% owned by Singapore's Jardine Cycle and Carriage. Astra leads the pack and last year increased its market share to 45% from 41.5% in 2003. The company sold over 483,000 vehicles, including exports, and saw its net income surge to a record high of Rp5.4 trillion ($577.54 million).

Car makers are also expanding their existing production capacity to meet demand and exploit the market potential from the relatively low ratio of car ownership in the world's fourth most populated country. Less than 1 in 35 Indonesians owns a car, compared with 1 in 14 Thais and 1 in 7 Malaysians, suggesting potential for even more growth.