Hyundai Indonesian Plant: Koreans Versus Dominant Japanese and Versus Looming Chinese Invasion Threat

AutoInformed.com on Hyundai H-1 (Grand Starex) MPV assembled in Indonesia

No word on vehicles to be built at the plant, but LMC’s informed view is that SUVs are most likely with a mix of smaller B- and C-segment models – Kona and Tucson.

Our friends at the LMC consultancy write that Hyundai Motor is finally doing something about its business in Indonesia, one of the world’s most populous markets. Last month, the Korean OEM signed a Memorandum of Understanding with the Indonesian government to invest in a new plant, with a reported annual production capacity of 200,000 vehicles from 2020.

“Despite having a presence in the Indonesian market for more than a decade, Hyundai’s local business has been relatively small, with sales of just 936 units in the first eight months of this year. The only vehicle currently assembled locally is the H-1 (Grand Starex) MPV. Hyundai’s other models sold in Indonesia – the Santa Fe, Tucson, i20 and i10 – are imported and therefore subject to import duties,” says LMC.

No word on the vehicles to be built at the new plant, but LMC’s informed view is that SUVs are the most likely candidates as this body style suits the local preference for 7-seater models, while also benefitting from lower taxes compared to Passenger Cars.

“We expect Hyundai to go with a mix of smaller B- and C-segment SUVs, such as the Kona and Tucson, as a means of broadening its product line, in lieu of limiting its offering to 7-seaters like the Santa Fe. This may prove to be a shrewd move in the longer run, considering Indonesia’s gradually evolving buyer demographics, with the younger generation opting for smaller families and therefore smaller vehicles,” notes LMC.

Hyundai did previously assemble other vehicles besides the H-1 in Indonesia, including SUV models such as the Tucson, but the automaker decided to switch to imports after these models failed to achieve volume targets. And

“It is precisely this lackluster demand that lies at the crux of its future in the ASEAN region. Upgrading from kit assembly to full local production will undoubtedly lower manufacturing costs, but will that alone be enough to allow Hyundai to jack up sales from the mere hundreds today to the tens of thousands, let alone the hundreds of thousands in the years ahead,” asks LMC?

Hyundai could tussle with its 200,000-unit target, particularly in the absence of exports. Hyundai may, however, be planning a phased investment program. LMC’s current assumption is for 50,000 units of capacity – “although this in itself could be overly optimistic.”

Hyundai is caught in the middle because it is competing head-on – albeit ineffectively – with its Japanese counterparts, while simultaneously facing mounting pressure from Chinese players at the lower end of the Indonesian market.

“Hyundai will have to improve its brand image, invest further in expanding its dealership network and shore up the resale value of its vehicles if it has any hope of succeeding,” says LMC.

However, this latest investment is a “statement of intent” in an important market that has been tough to crack for some global OEMs.

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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