© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
April 16, 2013 11:43 am
The overwhelming majority of the cars and motorbikes on Indonesia’s traffic-clogged streets are Toyotas, Hondas and other Japanese marques.
But the company responsible for producing, distributing and selling most of them is Astra International, an Indonesia-listed conglomerate majority owned by Jardine Matheson, one of the original Hong Kong trading houses of the colonial era.
Buoyed by a decade of robust economic growth in one of the world’s hottest emerging markets, Astra has built a dominant position in the fast-growing automotive sector, producing 54 per cent of the cars and 58 per cent of the motorbikes sold last year through its joint ventures with Toyota Motor, Daihatsu and Honda.
But while Astra expects to continue capitalising on the rapid growth of the Indonesian middle class, Prijono Sugiarto, the company’s top executive, warns that growing trade imbalances and the depressed price of palm oil and coal – Indonesia’s key export commodities – will hold back growth in sales this year.
“All in all, it’s not easy to face this year,” he tells the Financial Times in an interview at the company’s vast manufacturing base in north Jakarta. “We have to be more calculating in these difficult times.”
After increasing at an annual average of 33 per cent over the past three years, Mr Sugiarto warns that car sales growth in the world’s fourth most populous nation will slow noticeably, with some expansion likely and sales staying “at worst flat” at about 1.1m vehicles.
The outlook for the motorbike market is also relatively tough, with sales growth “probably flat or only 5 per cent” because palm oil farmers and coal mine workers in Sumatra and Kalimantan have been hit by sliding commodity prices, the result of moderating economic growth in resource-hungry China and India.
Motorbike sales fell 12 per cent to 7m units last year because of the commodity price drop and a new central bank regulation requiring minimum downpayments of 25 per cent for two-wheeler loans.
Astra, which is the largest-listed conglomerate in Indonesia with a market capitalisation of more than $30bn, also felt the pinch from China and India directly through Astra Agro Lestari, its palm oil plantation business, and United Tractors, which distributes Komatsu heavy machinery to miners and plantation companies in Indonesia.
The other cloud on the horizon is the re-emergence of concerns about macroeconomic imbalances.
Like other Indonesian family-owned businesses, Astra was brought to its knees by the Asian financial crisis of 1997-98, when car sales collapsed by 85 per cent in one year. But, after Jardines took advantage of the slump to acquire a stake in 2000, the economy recovered and Astra has profited from 10 years of political and economic stability, which have given middle class consumers the confidence to splash out on new cars.
However, last year Indonesia recorded its first current account deficit since the 1997-98 crisis as falling commodity prices and protectionist economic policies damaged its trade position, while energy subsidies weighed down the state budget.
Astra is sticking to plans to invest about $2bn this year on expanding automotive and palm oil production
Mr Sugiarto says the situation is “alarming” and “dangerous if it’s not well managed”, with the rupiah, already one of Asia’s worst-performing currencies relative to the dollar, coming under renewed pressure. He called on the government to slash the very fuel subsidies that have helped pump up the automotive market.
“It’s not sustainable to have a subsidy of $30bn on electricity and fuel,” he says, asking the government to raise the cost of petrol gradually rather than making large, one-off hikes like in 2005, when the doubling of fuel prices pushed car sales down by 40 per cent.
While the company, which saw net income grow 9 per cent year-on-year to Rp19.4tn ($2bn) in 2012 on revenue of Rp188tn, up 16 per cent on 2011, is facing more challenging short-term conditions, Mr Sugiarto remains confident in the long term outlook, with the government forecasting that annual car sales will reach 2m by 2018.
So Astra is sticking to plans to invest about $2bn this year on expanding automotive and palm oil production.
Astra’s ability to withstand short-term turbulence is supported by the steady hand of the Keswicks. The family became involved with Jardines in the 1850s when it was an opium trader in China and still run the conglomerate, which owns 50.1 per cent of Astra.
“We must be grateful because they are long-term investors,” says Mr Sugiarto. “We grow together but basically the policies come from Astra. It’s bottom up. Of our 180,000 employees, how many Jardines representatives do we have? Not even five.”
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in