Production Base
Hyundai Motor Co. is seeking to secure a commercial car production base in Indonesia. The company will aggressively target the Indonesian and Southeast Asian markets, which are expected to grow explosively, by securing production facilities in the form of a joint venture with local companies.
According to industry sources on August 14, Hyundai Motor announced its plan at the 25 Gaikindo Indonesia International Auto Show (GIIAS) held at the Indonesia Convention Exhibition (ICE) in Tangerang to build a commercial car production plant in Indonesia as a joint venture as early as the second half of next year and expand sales in earnest. The company is expected to establish a 50-50 joint venture with a local company. When Hyundai Motor secures the factory in Indonesia, it will have the third overseas plant following Sichuan Hyundai and one in Turkey.
With a goal of beginning the local production in the second half of 2018, Hyundai Motor is currently injecting complete knock down (CKD) into the factory and testing if it can actually produce cars. After the completion, the factory will have a production capacity of 1,000 units and expand it according to demand in the future. Indonesian media said, “The factory will be able to supply products to not only in Indonesia but also neighboring major countries in Southeast Asia.”
Hyundai Motor joined hands with Korindo Group, a Korean-Indonesian conglomerate, in 2016, and had assembled and sold CKD in Indonesia from 2007. However, the company stopped production in June 2011. Since then, it has exported large commercial cars to Indonesia in the form of completed vehicle. Hyundai Oto Komersial Indonesia (HOKI), a local distribution company, currently imports and sells the Hyundai Xcient and Mighty. However, sales of the products are low due to the weak price competitiveness caused by tariffs. Hyundai Motor’s combined sales of sedans and commercial cars in Indonesia stood at 571 as of June this year. It has only 0.1 percent market share. The Indonesian car market is dominated by Japanese automakers, such as Toyota with 36.6 percent market share, Daihatsu with 17.7 percent and Honda with 17.5 percent.
Hyundai Motor is trying to build the joint venture because the Indonesian commercial car market shows a significant growth. The market is the largest in Southeast Asia. According to the Association of Indonesia Automotive Industries (GAIKINDO), the commercial car market, including bus and truck, had sales of 41,295 units as of June this year, which is 1.5 times larger than the domestic market. The sales of cars with a payload of more than 10 tons, which are main products of Hyundai Motor, grew 11 percent on-year, though the overall sales of trucks decreased 10 percent.
Through the joint venture, Hyundai Motor is also seeking to strengthen the Southeast Asian commercial car market invasion. Under the ASEAN Trade in Goods Agreement (ATIGA), ASEAN countries will eliminate intra-ASEAN car import duties from 2018. The company can sell cars manufactured in Indonesia free of duty to neighboring countries, including Vietnam.