Boost in Indonesia's car exports

Even though it is difficult for Indonesian car manufacturers to export their output to overseas markets, as reflected by the declining number of local car exporters (down from 8 in 2013 to 5 at the start of 2018), Indonesia's car shipments have been rising steadily over the past 5 years. However, in absolute terms the figure remains modest with 231,169 exported car units from Indonesia in full-year 2017, according to a report by GAIKINDO (Association of Indonesian Automotive Industries)

 

Indonesia's Industry Ministry targets to see the export of at least 20% of car units that are manufactured in Indonesia. Considering Indonesia produced a total of 1,216,615 car units in 2017, whilst exporting 231,169 units that same year, the ratio stands at 19%, just below the ministry's target.

 

Production capacity is not an issue in Indonesia's automotive industry following the investment of several companies for the expansion of their manufacturing plants in recent years as well as investment by new entrants. The country's total installed annual car production capacity has now reached an estimated 2.25 million. In fact, Indonesia's car production capacity surged 70% over the past 6 years.

 

These production expansion plans of the Indonesia's car manufacturers are primarily encouraged by the still low per capita car ownership ratio of Indonesia. And although domestic car sales figures have been stagnating in recent years (a phenomenon that is usually attributed to the country's bleak growing purchasing power) there is still ample room for car sales growth in Indonesia in the future.

 

A major problem in terms of car exports is that Indonesia's car shipments can currently only reach developing nations, such as its peers in the Southeast Asian region, South America and Africa, as well as the Middle East. The reason behind this is that these countries have not set high standards for safety and gas emissions. Indonesia also lags behind, rather far, in terms of safety and gas emissions regulations. Through Environment and Forestry Ministry Regulation No. P. 20/MENLHK/SETJEN/KUM. 1/3/2017 on the Standard Exhaust Emission of Euro 4-Type Motor Vehicles, published on 10 March 2017, the Indonesian government orders all domestic manufacturers of 4-wheeled motorised vehicles to adjust to the Euro-4 emission standard. The Indonesian government announced that it would provide an 18-month period to local car or bus manufacturers to adjust to the new standard, whilst diesel vehicles were given 4 years to adjust. Currently, most automotive manufacturers in Indonesia are still in the Euro-2 phase.

 

Whilst several advanced nations already started to use the Euro-2 standard back in 1997, Indonesia only followed suit in 2003 (while the Euro-2 standard fuel is still not widely used around the Archipelago today as many Indonesians are still using RON 88, also known as premium). And while advanced nations started to comply with the Euro-4 standard since 2005, Indonesia is barely ready to introduce it in 2018.