Analysis: City cars to stir up competition in Indonesia
JAKARTA (Reuters) - Joko Chahjono, a senior vice president at Bangkok Bank in Jakarta, owns at least 10 Toyotas and has never bought anything else. Seeking comfort above all in a car, Chahjono adores his Camry sedan and is thinking of buying his first Lexus from the Japanese carmaker's luxury line.
Admiration of Toyota Motor Corp is widespread in Indonesia, where the world's biggest automaker accounted for a staggering 37 percent of the market last year with sales concentrated in the popular multipurpose vehicle (MPV) segment.
But the government's plan to create a market for low-cost "green" city cars is set to foster competition like never before, possibly threatening Toyota's dominance in one of the most promising car markets and giving rivals such as Hyundai Motor Co and Nissan Motor Co a chance to boost their presence.
"Once the city-car segment takes off, there may be people out there who have no qualms about buying a Korean car or a Volkswagen," said economist Tadahiro Nakagawa, a Tokyo-based Indonesia specialist at Mizuho Research Institute.
"If Hyundai and (affiliate) Kia Motors succeed at marketing like they have elsewhere, they could become a major threat," Nakagawa said, noting that South Korea's LG Electronics had already blazed that trail in the field of consumer electronics, unseating Japanese brands at the top in Indonesia.
So far, Hyundai is a bit player selling fewer than 3,600 cars last year in a 765,000-vehicle market where Japanese cars are more popular than they are in Japan, making up 95 percent of new vehicles sales.
But with Hyundai fast catching up almost everywhere else in the world, Toyota is the first to acknowledge the threat.
"We need to develop a low-cost, compact car in Indonesia," said Yasuhiro Takahashi, an official at Toyota Motor Asia-Pacific. "Keeping our distance from the Koreans is the most urgent task we face there."
Toyota has said it was considering a low-cost car to meet the government's goal of bringing cars to the masses, but has stopped short of disclosing concrete plans.
With a strong brand image to protect, Toyota has struggled to strip down its cars to match the needs of emerging markets.
Its cheapest offering globally is the Etios hatchback in India, which costs about $9,000, and anything smaller or cheaper would normally be the territory of minicar subsidiary Daihatsu Motor Co.
The government is widely expected to outline what it wants in the low-cost green car by the end of the year. Many expect a low price range, minimum local content and fuel economy to be among the requirements.
RIVALS POUR IN
With its population of 240 million -- the world's fourth-largest -- a fast-growing middle class and economic growth, Indonesia is seen as the next frontier for automakers after Brazil, Russia, India and China.
Consumer demand in Southeast Asia's largest economy has been growing steadily, and car sales, a key indicator, are steadily rising, clocking a 13.2 percent jump in August from a year ago. Sales rose 58 percent in 2010.
The jump in consumer spending also helped the economy grow a robust 6.5 percent in the second quarter.
As a result, the country has enjoyed a sudden surge in investment from the auto industry this year, with carmakers including General Motors Co, Suzuki Motor Corp, Daihatsu Motor Co and Nissan all announcing new investments to expand in a market expected to reach 1 million within two years.
Last week, Toyota broke ground on a new 70,000-vehicles-a-year factory in Karawang, near the capital.
Carmakers are hoping for an explosion in car buying with an eye on the vast motorcycle market that is expected to reach 8 million this year, nearly 10 times the size of the car market.
"Motorcycle owners will some day buy a car," said Jodjana Jodi, chief executive of Auto 2000, Toyota's biggest sales company in Indonesia.
"There's huge potential, but right now the price gap between a car and a motorcycle is too big. We need a product in the 1 million rupiah range to grab these consumers," he said.
Toyota's cheapest model is the 150 million rupiah ($17,000) Avanza, a popular MPV co-developed and produced by Daihatsu.
Jodi said he wanted city cars in his line-up also because families in the capital were becoming smaller and didn't need a seven-seater MPV. That segment currently accounts for about 60 percent of Indonesia's passenger vehicle sales.
Johnny Darmawan, president director of Toyota-Astra Motor, the local sales and marketing company, said Toyota risked falling behind without such a product, at a time when Nissan was gaining ground by launching the locally built March subcompact and Juke compact SUV in the past year.
"We have the best sales network and services. Where we lag is products. We need momentum," Darmawan said.
Indeed, Toyota's own success in boosting its market share by nearly 10 percentage points from 2000 was thanks to the launch in 2004 of the Avanza, which hit a sweet spot with customers looking for a cheaper MPV. The right city car, analysts said, could do the same for others.
($1 = 8,770.000 Indonesian rupiah)
(Editing by Matt Driskill)