Motorcycle manufacturer PT Astra Honda Motor (AHM) on Friday officially began the construction of the company'€™s fourth manufacturing plant located in Karawang, West Java.

AHM production, engineering and procurement director David Budiono said the company would invest up to Rp 3.3 trillion (US$338.17 million) in the new plant, which would have the capacity to produce 1.1 million motorbikes a year.

He said the new plant, scheduled to commence operation in the second quarter of next year, would enable the company to increase its motorbike production to 5.3 million units a year.

AHM, equally owned by PT Astra International and Japan-based Honda Motor Co., currently has three manufacturing plants '€” the Sunter and Pegangsaan plants in Jakarta that have an annual production capacity of 1 million units each, and Cikarang plant in West Java that has a production capacity of 2.2 million units per year.

The new plant would be solely dedicated to the manufacture of scooters as demand continued to rise; according the company, scooters contributed 65 percent, or 2.7 million units of total sales, which reached 2.9 million units.

Sales of motorcycles in Indonesia, the world'€™s largest producer of several key commodities, such as palm oil, coal and rubber, have been affected by the fluctuation of commodity prices. The commodity boom in recent years has driven demand for motorcycles, particularly outside Java, where motorcycles are popular among plantation and mining workers

According to the Indonesian Motorcycle Industry Association (AISI), motorcycle sales totaled about 6 million units in 2008 and rose by more than 2 million units in two years to reach more than 8 million units in 2011.

Sales did decrease to 7.06 million units in 2012 due to the due the decline in commodity prices, which also affected the buying power of plantation and mining workers. The drops affected key firms such as Astra Honda Motor, Yamaha Indonesia Motor Manufacturing and Suzuki Motor Indonesia. Despite the lower sales, Honda continued to control the market, with a 57.93 percent market share, followed by Yamaha with 34.38 percent and Suzuki with 5.93 percent

The association estimates that the total sales of the two-wheel vehicles is expected to decline by 11 percent to 6.3 million units this year because the central bank'€™s new regulation on loan-to-value (LTV) ratios and the reduction in the purchasing power among plantation and mining workers would continue to affect the motorbike market.

According to the central bank'€™s new regulation, issued in June 2012, the minimum down payment for motorbike purchases using bank loans was raised to 25 percent from 10 percent.

Honda Motor Co., chief operating officer for regional operations Asia and Oceania Hiroshi Kobayashi said on Friday during the event that there was ample room to grow in Indonesia as the country has a large population and strong purchasing power.

'€œIndonesia is the third largest motorcycle market and our projection is that the market size would be 7 million this year, Indonesia is the biggest motorcycle market for Honda,'€ he added.

AHM production, engineering and procurement director David Budiono said that China and India are the first and second largest motorcycle market. He said that the company aimed to sell 4.3 million units of projected 7 million units this year.

'€œWe believe that the market will hit up to 10 million units in the next three years as our economic grow well,'€ he added.

According to the India-based Investment Information and Credit Rating Agency (ICRA), Honda and TVS is usually on the third and fourth in Indian motorcycle market, while the market leaders are local Hero MotoCorp and Bajaj Auto. (koi)

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