Honda follows rivals with Indonesian car market expansion plans

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Honda ( HMC , quote ) is joining numerous foreign automakers with its plans to build a new assembly plant to boost local production of its most popular models in Indonesia, Southeast Asia's second-largest car market after Thailand.

[caption id="attachment_63123" align="alignright" width="300" caption="Busway traffic in Jakarta, Indonesia"] Image courtesy nSeika: http://www.everystockphoto.com/photographer.php?photographer_id=113739 [/caption]

Last week Honda Prospect Motor, the Japanese auto manufacturer's distributor and assembler in Indonesia, began construction on a $329 million factory in Karawang, West Java. The factory, which Honda hopes will boost its local production threefold to 180,000 vehicles annually, is the company's second manufacturing plant in the archipelago.

The plant will produce models such as the Honda Jazz four-door compact hatchback, CR-V compact sports-utility vehicle and Freed multi-purpose vehicle. Additionally, however, Honda aims to start producing models that it imports for the time being, such as the Brio, another hatchback model.

"The plan is that it will produce new models such as the Honda Brio," said Honda chief executive officer Takanobu Ito, according to the Jakarta Globe .

A record 894,180 vehicles were sold in the Indonesian car market in 2011, a 17% increase over a year earlier, according to the Association of Indonesian Automotive Industries (Gaikindo). While growth is projected to slip to 5% this year, Indonesia looks set to overtake Thailand as the region's top car market.

"With the automotive market growing and conducive economic conditions, this country holds big potential for the automotive industry," Ito said to the Jakarta Globe .

Because auto production requires a lot of capital and is labor intensive, Indonesia's low costs make local production especially appealing to foreign companies.

Consequently, Toyota ( TM , quote ) has also said it will invest $143 million to build a new factory to boost local output by 60%. Suzuki ( SZKMF , quote ) has even grander plans. It announced it would invest $700 million to construct a new engine plant that will also expand its production in Indonesia.

General Motors ( GM , quote ), BMW, and Tata ( TTM , quote ) are likewise making plans to make inroads in the Indonesian car market.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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