Utilization of Indonesia's Car Manufacturing Capacity Low
The utilization of Indonesia's installed car production capacity is expected to fall from 58 percent in 2016 to 55 percent in 2017 as the expansion of domestic manufacturing capacity is not in line with growth of domestic car sales and car exports. Indonesia's car production capacity rose 14 percent (y/y) to 2.2 million units in 2017 due to the start of operations at two factories (owned by Mitsubishi and Wuling). However, the actual car production figure of Indonesia is estimated to reach 1.2 million units only in 2017 (up 9 percent from 1.1 million units in the preceding year).
Meanwhile, the Indonesian Automotive Industry Association (Gaikindo) expects car sales in Indonesia to reach 1.1 million units in 2017, up slightly from 1.06 million sold cars in the preceding year. Car exports from Indonesia are targeted to reach 200,000 units this year, up from 194,000 units in 2016.
I Gusti Putu Suryawirawan, Director General of Metal, Machinery, Transportation Equipment & Electronic Industries at the Indonesian Industry Ministry, said the government is eager to boost Indonesia's car export figures, especially the sedan vehicle, hence boosting production figures and raise the utilization figure that currently stands around 55 percent (implying almost 50 percent of factories capacity remains unused).
But there is an obstacle. Currently, Indonesia has a well developed multipurpose vehicle (MPV) and sport utility vehicle (SUV) manufacturing industry, but the sedan industry is left underdeveloped. This is a missed opportunity for the nation's exports because about 80 percent of the world's drivers use a sedan vehicle.
Why is there an underdeveloped sedan industry in Indonesia? The problem is that the tax system in Southeast Asia's largest economy does not encourage the production and export of the sedan vehicle. The luxury goods tax on the sedan is set at 30 percent, while the tax on the MPV is set at 10 percent. Therefore, Suryawirawan said several revisions are required in order to develop the "sedan market". The price of the sedan needs to become more competitive in order to encourage demand (both domestic and global demand). It is up to the Indonesian Finance and Industry Ministries to solve this tax issue and find a balance between encouraging investment in sedan manufacturing facilities while safeguarding government revenues from taxation.
Read more: Analysis of Indonesia's Automotive Industry
Kukuh Kumara, General Secretary at Gaikindo, adds that it is difficult for Indonesia to boost its car exports because Indonesia's automotive industry is still at the Euro 2 level, while other nations are already at Euro 5 (Euro is a standard that reduces the limit for carbon monoxide emissions). Other issues that limit car exports are concerns about safety standards and technology.