Uncovering Opportunities for National Automotive Industry at the Regional Stage

As the biggest automotive market as well as an automotive production base in South-east Asia (Asean), Indonesia has the chance to increase its export considerably. Since 2014, Indonesia has been named South-east Asia’s largest automotive market. This occurred when Thailand’s four-wheeler sales stagnated due to its political turmoil. Indonesia’s domestic sales at that time reached 1.2 million units, representing 37.9% of Asean’s overall market of 3.19 million units. The country managed to hold the position until the end of last year. Although the total market volume declined, Indonesia’s domestic autosales were 940,360 units as of November 2019, accounting for 29.9% of Asean total sales of 3.14 million units, according to data from Asean Automotive Federation (AAF). 

Asean’s third biggest markets – Indonesia, Malaysia and Thailand – interestingly stagnated. Although Thailand’s domestic sales had gradually recovered, the figure was still around 1 million units annually. So did Indonesia, whose domestic market had shrunk since 2014 to reach 1.15 million units in 2018. Malaysia performed worse than its two peers, with sales still totaling 600,000 units in 2014, but then plunging to 570,000 units. 

Other Asean countries, such as Vietnam, the Philippines, and Myamar, apparently booked high growth in sales. In 2018 Vietnam’s domestic sales were 288,680 units, up 13%, although its market could only take up 133,580 units in 2014. The Philippines also posted a similar growth rate of 10% on average in the past five years, reaching 357,410 units. Myanmar also followed the same upward trend despite being on the different level. 

The situation indicates the saturation in the regional automotive market. Fortunately, the stagnation in Indonesia’s automotive market has not affected the growth of its local car production. In 2018 its overall production rose by 9.5% to 1.34 million units, whereas the figure declined by 4.6% to 1.18 million units in January-November 2019. This means export by domestic manufacturers accelerated. Since 2015 Indonesia’s annual export of completely-built up (CBU) vehicles has been approximately 200,000 units, and last year, the figure surged to 310,000 units. 

Toyota and its group Indonesia has always tried to play an active role in export. Until the end of last year, Toyota’s CBU vehicles contributed about 64% to Indonesia’s overall CBU vehicles. However, the company had to ride on a bumpy road to achieve its export performance. Various factors from global economic situation to protectionist policies by export destinations prevented the country from attaining maximal export performance. 

Indonesia’s nearest and biggest export market is Asean. As the country with the largest market in Asean, it should grab a greater slice in the region. Moreover, Asean signed a free trade area agreement long time ago. Nevertheless, Indonesia’s export to Asean often faces obstacles in its neighbours. 

One of the most unsettling incidents was that Indonesia’s automotive export was hindered by non-tarrif barriers in one of its export destinations. In free trade rules, a unilateral rule imposed by another country can be minimalised by common reference of standards. The mechanism is better known as Mutual Recognition Arrangement (MRA). Under the MRA, the free trade regime works as rules amongst the participating countries and standards are harmonized. With the framework, it is expected that non-tariff barriers will no longer hamper trade in a region because the MRA will eventually bring mutual benefits to all participating parties.