T

he government and automotive industry players are playing down the abrupt exit of Ford from Indonesia, saying it will not dent the country'€™s vision of becoming Southeast Asia'€™s auto hub in the future.

Industry Minister Saleh Husin said the news did not signal an under-performing automotive industry but rather stiffer competition in Indonesia. '€œIt has no impact on the local industry because Ford imports cars from Thailand. Automotive investment in the country remains pretty good,'€ Saleh told reporters on Tuesday.

'€œWe have Mitsubishi, Isuzu and Wuling currently constructing their factories [worth around US$1 billion],'€ he added,

Investment Coordinating Board (BKPM) data show that new investment in the sector increased 13 percent year-on-year to Rp 21.6 trillion ($1.55 billion) last year.

Besides Ford, General Motors also decided to shut down its Indonesian operation last year.

Meanwhile, Association of Indonesian Automotive Manufacturers (Gaikindo) chairman Jongkie Sugiarto expressed similar optimism, saying that, '€œThe two exits do not necessarily mean we can'€™t become an auto hub. We still have other brands investing billions of dollars.'€

Jongkie said the auto hub dream was perfectly realizable, given the country'€™s 250-million population, which is both a huge market and a source of manpower.

'€œThe problem now is that we have to maximize current capacity by making more demands and producing more SUV and sedan types to export as they'€™re much sought after worldwide,'€ he said over the phone.

Currently, annual production capacity amounts to 1.9 million units, however only 1.03 million units were produced in January to November last year due to the economic slowdown.

'€œWe suggest the government lower the luxury tax to boost demand, especially for sedans and SUVs. If the demand is high, investors will automatically come,'€ he said.

Gaikindo met President Joko '€œJokowi'€ Widodo last October to pass on the message as well as to suggest a tax holiday for spare-part producers to help the industry grow and compete with Thailand, currently the biggest automaker in the region.

ASEAN Automotive Federation data show that for the January to November period last year, Thailand produced 1.76 million units, compared to Indonesia'€™s 1.03 million.

However, the data also show that Thailand'€™s production has declined significantly, by 24 percent from 2.5 million in 2013 to 1.9 million in 2014.

Indonesian production, meanwhile, has been stagnant at around 1 million to 1.2 million since 2013.

Many foreign automakers source their spare parts or unit production locally to reduce costs. Ford, for example, has its manufacturing base in Thailand.

The lack of a factory in Indonesia was also seen by Minister Saleh as one of the factors for its unsustainable domestic sales. '€œFord'€™s presence here is not supported by a local components industry. It'€™s different compared to those who already have a significant proportion of local content,'€ the minister said.

On Monday, the US-based automaker announced its decision to halt operations in Japan and Indonesia as it saw '€œno reasonable path to profitability'€ in the two countries where it has struggled to gain market share amid competition with Japanese brands.

Japanese brands account for around 95 percent of total auto sales in Indonesia, according to Gaikindo.

Ford Motor Indonesia communication director Lea Kartika Indra said the company would close all of its 44 dealerships before the year-end but would provide spare parts and servicing through alternative means that will be announced prior to its departure.

According to Gaikindo'€™s Jongkie, the Ford exit is not a threat to other smaller players, ranging from Chinese brands to European luxury cars, because '€œIt'€™s all about offering the right products at the right price at the right time.'€ (rbk)