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Japanese Bikes Still No. 1

Maret 24, 2007

This is my article which published by The Jakarta Post daily, dated 17 March 2007, p. 6.

Indonesia is the third largest motorcycle market and producer in the world after China and India. Production in 2005 reached an all-time high of 5.2 million units, 5.1 million of which were made by members of the Indonesian Motorcycle Industry Association (AISI).

Due to the economic downturn following the petrol price hike in October 2005, however, the market has deteriorated significantly in 2006. Production by AISI members is estimated at only 4.4 million units.

For the last decade, Indonesian motorcycle industries have had successful and efficient operations, especially in terms of turning out small utility motorcycle models such as the Cub Type (motor bebek) with engines below 150 cc displacement.

Today, the most successful Indonesian manufacturer is producing around 6,500 units a day with a very high percentage of local components as well as engineering capability, particularly in tooling and some aspects of manufacturing.

Indonesian motorcycle manufacturers have even been transferred to other areas of ASEAN to assist in research & development.

The process of transferring manufacturing; engineering capability as well as parts of the process allows motorcycle manufacturers to introduce models at a much faster turn-around time, more suitable to the tastes of ASEAN customers, and with a smaller price tag, compared to the production and engineering base in Japan.

After its negative growth in 2006, the Indonesian motorcycle industry seems to have hope for significant recovery. The latest figures released by AISI showed
that motorcycle sales in January increased almost 30 percent, to 346,670, compared with the same period in 2006. That was the second-highest January sales figure ever, bested only by the remarkable January 2005 total of 388,789 units.

Market leader Honda was still at the forefront of production in 2006 with around 2.5 million units, or more than 50 percent of the total Indonesian motorcyle output. Yamaha retained its position in second place, with Suzuki in third.

About 90 percent of Indonesia’s motorcycle market was devoted to light motorcycles. Honda claimed 52 percent of the market. Yamaha reclaimed second place in 2005 after Suzuki surprisingly grabbed it in 2004. Another Japanese brand, Kawasaki, had a 1.45 percent share. The Chinese brands trailed far behind, despite prices about 30 percent lower, because their quality and after-sales service are considered questionable.

Local brand Kanzen, Korea’s Kymco and Italy’s Piaggio, which also makes the famous Vespa, held insignificant market shares.

Japan appears set to continue its domination of the Indonesian market, despite efforts by other countries’ brands, such as India’s Bajaj, to try to grab the market with barrages of advertisements.

Indonesian motorcycle market seems poinsed to rise again this year, supported by the momentum of lower interest rates and relatively more stable macroeconomic conditions than in the first quarter of 2006.

The demand and market opportunity are surely there, given that Indonesia’s motorcycle density is still around 20 people per motorcycle, as compared to 5 or 6 in countries such as Thailand and Malaysia.

The mocin boom (motor cina or Chinese motorcycle) of the early 2000’s has died off. The arrival of large large numbers of completely built-up motorcycles mostly made in China, made possible by Indonesian deregulation and liberalization following the 1998 crisis, has been reversed by the “piggybacking” phenomenon, when the massive sales were followed by the aformentioned problems.

Chinese brands are aiming for the low-end market in rural areas. Their customers are mainly price-sensitive buyers with limited knowledge of service and quality issues.

Even though some of their models claim to be 100 percent Indonesian-designed and built, Chinese brands are still struggling to educate the market. A major constraint on the promotion of non-Japanese motorcycle brands is the domination of the market by certain big banks.

The Japanese manufacturers have developed strong relationships with banks, such as Astra Honda Motor with Bank Permata and Suzuki with BCA. Hence, it is a bit difficult for other banks to offer an ideal financing scheme to mitigate the risks and apply the cross-selling strategy with the main principal.

The other financing method is credit channeling via leasing/multi-finance companies but this segment is also dominated by certain multi-finance companies owned by big banks, such as Adira (Bank Danamon), BCA Finance, WOM Finance (BII) and U Finance (Bank of Tokyo Mitsubishi UFJ).

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