Indonesia's Astra Pins Hopes on Inexpensive Cars

From Wall Street Journal

Feb 14, 2013

PT Astra International plans to continue dominating Indonesia's booming car and motorcycle markets by spending billions of dollars on expansion and becoming the first auto maker to sell a car priced to reach the country's emerging middle class.

Astra controls 54% of the passenger-car market through joint ventures with Japan's Toyota Motor Corp., Daihatsu Motor Co. and Isuzu Motor Ltd., and holds 58% of the motorcycle-and-scooter market through a joint venture with Honda Motor Co. 

To expand the pool of Indonesians who can afford a car, Astra plans next quarter to introduce models with sticker prices as low as $8,000 through its joint ventures with Toyota and Daihatsu. Currently, the least-expensive passenger cars in Indonesia sell for at least $12,000.

"We will be the first offering affordable vehicles," he said. "This year, [auto-sales growth] should at the very least be flat, provided this new car is launched."

Astra and its Japanese partners are proceeding with more than $2 billion in new investment to boost capacity and expand their reach to Indonesia's far-flung islands. "We don't have any intentions of slowing down whatsoever," Mr. Sugiarto said.

Less than 5% of Indonesia's 240 million people own cars. As lower prices and strong economic growth put a car within reach of more Indonesians, annual sales could eventually hit three million vehicles. While China's market is five times that size, Indonesia's market is expected to expand faster.

Mr. Sugiarto said the low-cost car could be introduced as early as April. Astra is waiting for the government to decide the tax rate on the car. Mr. Sugiarto said he expected the vehicle will get special tax treatment under the green-car program, because of its high fuel efficiency. The car, with the names Toyota Agya and Daihatsu Ayla, will go more than twice as far on a liter of gasoline as Indonesia's most popular current vehicles, Mr. Sugiarto said.

Other auto makers, including India's Tata and Japan's Nissan Motor Co., are scheduled to roll out their own inexpensive, fuel-efficient models in Indonesia, but not until later, said Michael Dunne, president of Car Keys, a Jakarta-based consulting firm.

Even in this new market segment, auto makers will find it challenging to compete with Toyota and Daihatsu and their national network of more than 1,700 sales and service outlets. "They have done a very good job of building a moat around their business," Mr. Dunne said. "And they are extremely price competitive."

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