INDONESIA: Tire industry braces for global competition

The domestic tire industry is bracing for foreign competition as major local tire maker PT Gajah Tunggal prepares to inaugurate its first test facility in May.

The test facility is the first to be developed by a local company. Currently, tire makers use a test facility owned by PT Bridgestone Tire Indonesia, a subsidiary of Japan’s Bridgestone Corporation.

Industry Ministry director general for chemical, textile and various industries Harjanto said that Gajah Tunggal would open the test facility in May this year. “It will be the first of its kind built by a local company, and second only to that of Bridgestone in the country,” he said. The facility, which will occupy a 65-hectare plot of land in Karawang, West Java, will be used to test the quality of tires for motorcycles and public vehicles.  

Gajah Tunggal also plans to build another test facility in 2017, which is expected to open in 2018. In the Asian region, tire test facilities are currently only located in Indonesia, Japan and Thailand. Gajah Tunggal president director Christopher Chan said that investment for the facility hit around USD 100 million. He said that he expected the government to also provide tax incentives for homegrown companies.

Voicing a similar view, Indonesian Tire Producers Association (APBI) chairman Azis Pane said the government should treat local tire investors equally with foreign investors. In addition, Pane said he was upbeat that the tire industry would grow this year as the country’s economy seemed to be on an upward trajectory. “In terms of volume, I think it will grow this year even though it won’t be as high as the 2011-2012 period,” he told The Jakarta Post. Azis estimated that the country’s tire industry would grow by 5 to 6 % this year, a recovery from the huge plunge of between 9 and 14 % last year.

Demand for tires in the country very much depends on the automotive market, which is hugely affected by consumer spending. Last year alone, when the country’s economic growth hit a six-year low of 4.79 %, domestic car sales slumped by 15.8 % to 1.01 million units from 1.2 million units in 2014. Experiencing a similar headwind, motorcycle sales dropped by 17.7 % to 6.48 units in 2015 from 7.87 million units in 2014. Sales of Indonesian tires overseas were also hugely affected by the weakening US economy, which is the largest export destination for Indonesian tire makers.

According to Industry Ministry data, the nation’s 14 tire companies produce a total of 77 million tires for cars, trucks and busses as well as 64 million for motorcycles. From the total output, 70 % is exported to various countries, including the US, Japan and some Asian countries.

The Association of Indonesian Automotive Manufacturers (Gaikindo) has previously estimated that the car sales will slightly grow this year as the country’s economy was expected to experience larger growth in the second half of this year on the back of the implementation of the government’s stimulus package and budget spending. Gaikindo has estimated that domestic car sales will hit 1.05 million units this year.

Source: Daily “The Jakarta Post”, Jakarta; 30 Mar 2016
(Syed Rashid Ali, Karachi, Pakistan)