It's a growing market, and the recently announced LCGC programme in Indonesia means that there will be almost zero duties on small cars. The company will start exports of CKD kits of WagonR in August-September. It is targeting substantial volumes, an industry source in the know told FE.
Indonesia's LCGC programme is similar to tax breaks given to small cars in India and is lately the focus of nearly every global carmaker, especially Japanese players like Nissan, Suzuki, Mitsubishi and Toyota. Under the regulation, electric/hybrid cars, biofuel-based cars and CNG cars will get tax incentives, while luxury taxes will not apply to vehicles with engine capacities of up to 1,200 cc (petrol) and 1,500 cc (diesel) that promise a minimum fuel economy of 20 kmpl. Currently, new vehicles are taxed between 10 and 75% in Indonesia.
Maruti had also done a study towards launching the Alto 800 in Indonesia. Though Alto is a top-selling car in the domestic market, it did not find favours with Indonesian buyers, who prefer bigger vehicles like MPVs and premium hatchbacks. In fact, the four top-selling cars in Indonesia in Jan-June 2013 were all MPVs, with Toyota Avanza (smaller version of the Innova) leading, the Daihatsu Xenia and Toyota Innova coming in second and third, followed by the Suzuki Ertiga at the fourth position.
The Indonesian car market, which touched an all-time high of 1.12 million units in 2012, is significant for Maruti at a time when sales in India are sluggish on back of a depressed consumer sentiment and slowing macro-economic growth. Ertiga has also been a runaway success, since launch in April 2012. Maruti exported about 65,000 CKD kits of MPVs, and between January and June this year, sales were up four times at 32,447 units with about 5,600 deliveries pending till the end of July. This is in addition to exports of a further 15,000 units of the Ritz (Suzuki Splash) and Estilo models a year to Indonesia. In fact, Maruti also supplies Ertiga CKD kits to Mazda, which re-badges it and sells it as the Mazda VX-1 in the Indonesian market.
With Maruti's domestic production capacity expected to touch about 2 million units a year by 2016 and parent Suzuki giving the company a mandate to focus on emerging markets like Africa and south-east Asia, the company has become much more aggressive about exports to growing markets like Indonesia. What works in Maruti's favour is that import duties in Indonesia for cars imported from India is expected to fall to 5% by 2020 from 20% today under a bilateral trade agreement that looks to progressively lower tariff barriers. Incidentally, Suzuki is also investing a 60 billion Yen on a car plant in Indonesia that will later locally manufacture cars like the WagonR.
Puneet Gupta, principal analyst at IHS Automotive India said while a focus on exports to south-east Asia is necessary for most domestic carmakers, for Maruti it is even more important given the huge production capacities it has today. It is a very significant move, and Indonesia is a market with similar demographics and vehicle penetration levels like India, so products that work here, will likely work there as well. I believe the small car they launch next year will be exported to these markets from India as well, he said.