Facing Gridlock, Jakarta Takes Aim At Cheap, Green Car Drive

By Randy Fabi & Andjarsari Paramaditha 11 December 2013

JAKARTA — Indonesia’s president wants to revive a flagging economy by selling cheap, fuel-efficient cars to an emerging, aspirational middle-class. The governor of Jakarta, the capital, says this will further choke his city’s gridlocked streets, and strangle growth.

Caught in the middle of this tug-of-war between arguably the country’s two most powerful politicians are local and Japanese carmakers hoping to boost revenue in a city that alone accounts for up to 60 percent of sales in Southeast Asia’s largest economy.

Automakers, including Toyota Motor Corp, Honda Motor Co and Nissan Motor Co and Daihatsu Motor Co, have spent at least US$3 billion this year on a new line of low-cost, green car (LCGC) models aimed at millions of Indonesians now looking to scale up from two wheels to four, government officials said.

But Jakarta Governor Joko Widodo—a favorite to win presidential elections next year, if he runs—is discouraging drivers by raising taxes, parking prices and traffic fines, fearing a flood of new cars will bring one of the world’s most congested cities to a standstill.

Jakarta and other major cities want the government-backed LCGC program delayed until infrastructure is in place to cope with the additional traffic.

Next year the number of vehicles in the city will match the amount of road available, according to transport ministry estimates—so, if all the cars were driven at the same time, the city would face total gridlock. The average speed for drivers in Jakarta has been clocked at as low as 8.3 kph (5.2 mph)—about twice as slow as London or New York.

“The [LCGC] cars might be cheap to buy, but we will make it expensive to operate. Owners of these cars will think twice before using them,” Udar Pristono, the chief of Jakarta’s transport agency, told Reuters.

Looking Beyond Jakarta

The capital’s hard line against President Susilo Bambang Yudhoyono’s controversial LCGC program, which comes with financial incentives to bolster demand, is forcing auto manufacturers to review and adjust their marketing plans.

“This might possibly call for a more determined push into rural markets in the short term to soften the blow from Widodo’s moves,” said a senior Toyota executive, who didn’t want to be named due to the sensitivity of the issue. “It’s cumbersome, but we only began implementing the (LCGC) program recently. It’s still adjustable.”

Auto executives say Widodo’s measures will only have a short-term impact, and they expect car sales to continue to increase. The car industry has been one of the few bright spots in Indonesia’s struggling manufacturing sector, with Gaikindo, the association of auto manufacturers, expecting to hit its 2013 target for record sales of 1.25 million vehicles, up from 1.11 million in 2012.

“Penetration of 4-wheel vehicles in Indonesia is only 40 per 1,000 people. That’s very small compared to China and India,” said Prijono Sugiarto, head of PT Astra International, the country’s largest automotive distributor. “So I’d encourage the sales push to rural areas and outside Jakarta.”

Nissan is promoting its Datsun GO hatchback as the “First Badge of the Risers”, and expects to have the new model in showrooms next year for under 100 million rupiah ($8,400). Rival models include Honda’s Brio Satya, Tata Motors Ltd’s Nano, Daihatsu’s Ayla and Toyota’s Agya. Toyota’s current entry-level model, the Etios Valco, costs 140-160 million rupiah.

General Motors Co, the world’s second-biggest carmaker but as yet a small presence in Indonesia, said it was keeping an eye on the LCGC initiative. “It will be really interesting to see what happens with LCGCs,” said Michael Dunne, who became GM’s Indonesia president in September. “We would like to watch first, let the incumbents lead, see where they take it. They may create a market that we can join.”

Congestion Costs

For Widodo, who has yet to decide if he will run for president of the world’s fourth-most populous nation, Jakarta’s traffic woes are a top priority.

His transport experts reckon the capital’s congested roads cost the economy about $2.8 billion a year, including $1 billion in wasted fuel and $970 million in lost productivity.

The governor is scrambling to build roads, bridges and a long-delayed subway to accommodate a city of 10 million people, 3 million vehicles and twice as many motorbikes.

“We are speeding up the preparation of the facilities and infrastructure to reduce traffic, and then suddenly there’s this cheap car policy,” Widodo wrote in protest to Vice President Boediono shortly after the LCGC program started in September, the Jakarta Post reported.

Widodo plans to raise the tax for first car owners to 2 percent from 1.5 percent, and double it for a second car to 4 percent. For a third car, the tax will jump to 6 percent from 2.5 percent currently, said Bernado Yulianto, a senior official in Jakarta’s tax office.

The governor also aims to significantly increase parking costs, raise fines for traffic violations and expand public transport by buying hundreds of new buses next year. The plans need to be approved by the capital’s House of Representatives.

President Yudhoyono’s administration has championed the new, cheap cars – especially as 80 percent of the vehicles must be locally made within five years. That has translated into $3.5 billion in investment from around 80 auto parts companies, such as Astra Otoparts, said Budi Darmadi, a director general at the industry ministry.

Around 40,000 cheap cars—costing less than 100 million rupiah—are expected to be sold this year in Indonesia, soaring to about 200,000 next year. The main local car manufacturers are Astra International and Indomobil Sukses Makmur.

“The criticism [of LCGC] is absolutely not fair,” Darmadi said. “This program is very good for the country and its economy, so there’s no reason to drop it.”