Prijono Sugiarto: Leadership and a workable system are keys
20 September 2016 14:12 WIB
TEMPO.CO, Jakarta - Two low-cost green cars (LCGC), the Toyota Calya and the Daihatsu Sigra, exhibited at the Gaikindo Indonesia International Auto Show last August at BSD City, South Tangerang, Banten, were the center of visitors' attention. At that event, 12,000 units of both types were sold. Astra Internasional CEO Prijono Sugiarto, 56, said the public had long been waiting for these two inexpensive and environmentally friendly automobiles. "The price, starting at Rp100 million, is affordable," he told Tempo.
In a report released last week, the Joint Indonesian Automotive Industry Association (Gaikindo) said by last August, the two 'sisters' make dominated total sales of 96,294 units in Indonesia. In the LCGC class, their market share was 33 percent.
Astra's position as king of the road seems solid as a rock. It controls 51 percent of the national automobile market through the sale of Toyota, Daihatsu, Isuzu, BMW and Peugeot cars. Among motorcycles, Astra Honda Motors dominate 72 percent of the national market.
Under Priyono's leadership, Astra now controls 202 subsidiary companies and employs 213,000 people. This is probably because Astra is no longer just a company selling cars. It has diversified to areas of finance, plantation and construction. Founded by William Soeryadjaya in 1957, Astra's initial business was in marketing beverages and exporting mineral resources. He began looking at the automotive industry when he ordered trucks from Japan 11 years later.
More recently, Astra took the step of going into unfamiliar territory: property and infrastructure. Through its United Tractors subsidiary, Astra is currently running power-generating projects in Jepara, Central Java, and planning to build more plants that are in line with the government's objective of producing 35,000 megawatts of electricity throughout the country.
Two weeks ago, at the Astra Internasional headquarters in Central Jakarta, Prijono spoke to Tempo reporters Fery Firmansyah, Martha Warta Silaban, Praga Utama, Tika Primandari and Reza Maulana. Excerpts:
The sales of the Calya dan Sigra cars at the 2016 Gaikindo Auto Show were outstanding. Was that expected?
Yes, we expected that. The price was affordable, starting at Rp100 million. We learned a lot from our sales of the Avanza and the Xenia cars. When they were launched, we never expected such a positive response. My favorite car at that time was the Toyota Kijang, which cost US$25,000. Before the monetary crisis, US$1 was equal to Rp2,200, setting the price at Rp55 million per unit. In 2004, when the exchange rate crept up to Rp9,000 to the dollar, the price rose to Rp225 million. So, when the Avanza and the Xenia appeared with a price tag of Rp80 million, they sold like hot cakes. Today, it's the turn of the next generation: from the Kijang and Avanza-Xenia models to the Calya-Sigra types. That seems to be the pattern.
An industry ministry regulation set the price of LCGCs at Rp95 million, yet you're selling the Calya and Sigra at a slightly higher price.
That policy only applies to five-passenger cars, like the Agya and the Ayla. Cars with an extended passenger capacity are allowed to raise the price. Other manufacturers do the same with vehicles carrying seven passengers.
Will the LCGC take a chunk off the motorcycle market?
I don't think in that way. Motorcycles are purchased by a certain group whose purchasing power is between Rp15 million to Rp20 million, an increase over the previous Rp12 million to Rp18 million. How can these people suddenly spend Rp80 million for a car? That's far-fetched.
Usually, if they can afford to spend Rp15 million to Rp20 million on a vehicle, people will buy a sports motorbike, which costs somewhere in the range of Rp25 million to Rp30 million. After that, they will go one notch higher and buy a used car, say at a price of between Rp45 million to Rp50 million. Only after all that will people look into the best and cheapest used cars. And after that, they will look at cars priced between Rp45 million to Rp50 million. The next level is to buy the cheapest used cars, like the Agya and Ayla.
The Boston Consulting Group found something interesting about Indonesia's pyramid-based consumers. Among the top income earners, 2.5 million will spend Rp7.5 million a month (on necessities). At the next lower level, there are some 6.5 million to 7 million people who spend Rp5 million to Rp7.5 million a month. They are people who can afford to buy automobiles on credit. They can afford to do so because the repayment installment is only Rp1.8 million, although they would need (some sort of account). But others think about the risks, like getting sick and being unable to pay the installments. All that precludes taxes. So they think long and hard about these changes. After buying a motorcycle, they don't immediately buy a car. This is understandable, given Indonesia's economic condition.
Why isn't Astra Daihatsu Motors producing the Xenia 1,000cc any more? Are they worried about competing with Sigra?
Like it or not, there's bound to be an overlap. When a product is over-cannibalized, why sustain it? All automotive manufacturers would like to fill all niches. BMW used to have its 3, 5 and 7 series. Then came the 4, 1 and 2 series. A little cannibalization is fine, better than having the niche filled by rival producers. It's like a baker, who's already got his dough, which can be made into different kinds of bread: banana, cheese and so forth. In the automotive industry, that 'dough' is the platform, about 60 percent of the total cost.
How much of an increase would be gained by Astra with the launch of the Calya and Sigra?
After reaching a certain point, it becomes really forced. Forget about increasing the market; just sustaining it is difficult enough. Take Honda, which grabbed 72 percent of the motorcycle market, rising slowly from 45 percent in 2008. Watching the figures remain stable, I can only say thank God. Getting it up to even half a percent is difficult enough. So, with Calya and Sigra, we will retain 51 percent of the market, because other brands will not sit still but launch new products, too.
Daihatsu was fully bought by Toyota last August. Will it impact on Indonesia, like separating Daihatsu so that it only produces small cars while Toyota will focus on the higher segments?
Outside collaborative products, like the Avanza-Xenia, the separation will have an impact indirectly. In Japan, Daihatsu made compact cars of 660 cc and below. The rest is manufactured by Toyota. In Indonesia, the 660 cc doesn't sell. Customers look for 1,000 cc-cars. So the overlap among the 1,000 cc is not that great. The off-road Daihatsu is the most expensive at Rp240 million, or Rp220 million after the discount. Meanwhile at Toyota, some cars can cost in the billions of rupiah, sold to the middle- and top-income earners.
What is Astra's long-term goal in the automotive industry?
We want increased use of local products, including the raw materials.
What about Daihatsu's plan to produce 100-percent local-content cars by 2019?
Hopefully, this year there will be one or two products created by local engineers and make the content 100 percent. It's not that it cannot be done, but there are components that don't change, like the design of the body, the engine and the concept. Call it whatever. Which one should we favor: Agya and Ayla, whose body was designed by Mark Wijaya at Sunter (Astra's headquarters in North Jakarta) or the Kijang made in Japan? (*)
Read the full interview in this week's edition Tempo English Magazine