The growing investment commitments pledged by world's prominent carmakers has positioned Indonesia to become the leading automobile manufacturer in the Southeast Asian region.
Indonesia is now expecting more than one billion U.S. dollars in automotive sector investment starting from this year.
Prominent carmakers from the United States, Japan, Germany and India have announced recently their expansion plans in Indonesia.
Japan's Nissan and Suzuki announced that it would expand 250 million and 800 million U.S. dollars respectively in car production in the country.
Chrysler from the United States has pledged a 100 million U.S. dollars expansion. Meanwhile, another Japanese carmaker, Daihatsu, had just implemented a 246 million U.S. dollars of expansion.
German luxury carmaker BMW pledged a 12 million U.S. dollars expansion, while India's Tata had also expressed interest in building a production base in Indonesia.
If the pledges of General Motors (GM) and Peugeot to revive their assembly plants in Indonesia are materialized, Indonesia would be the front-runner in the region's car making industry.
The growing car production investments in the country was supported by several favoring conditions in the country, among others by a combination of investment, tax incentives, and a rising middle class.
The Indonesian government has announced this week that it would give tax breaks for investment over one trillion Rupiah (about 117 million U.S. dollars)."Indonesia's domestic market potential is by default larger than Thailand, but without infrastructure to create a production base capable of exports, Indonesia can't compete as a major player at the global level," he said.
"Our domestic market is growing, and the principals want a bigger slice," said Jongkie Sugiarto, a deputy at the Association of Indonesia Automotive Industries (Gaikindo). "They came here because our existing facilities are struggling to meet demand," he was quoted as saying by a local media.
According to Jongkie, it would take two years for Indonesia to outclass Thailand in terms of sales and production. Jongkie said Gaikindo has forecasted a sale of 830,000 vehicles this year, 950, 000 in 2012 and one million or more in 2013.
According to the data released by the Gaikindo, companies in Indonesia produced 650,000 cars last year, sold 764,000, with imports making up the difference.
In Thailand, meanwhile, 1.64 million vehicles were made last year, while 800,000 units were sold domestically and the rest exported, according to the Automotive Industry Club of the Federation of Thai Industries. The group expected domestic sales in Thailand this year to reach 850,000 units with exports at one million units.
Rising cost pressures in Thailand, a nation of about 70 million people, might make Indonesia more attractive for automakers that do business in both countries.
Indonesia offers workers at competitive cost for those carmaker firms. The minimum daily wage in the capital city of Jakarta area would be around 8 U.S. dollars, while in Thailand was set at 10 U. S. dollars.
Most of car production plants in Indonesia are located in Bekasi and Karawang, West Java province located in east side of the capital city.
Indonesia offers huge domestic car market that is larger than Thailand. But the infrastructure problem in Indonesia could be the most issue that need to be addressed quickly by the government if it wants to overtake Thailand in automotive investments.
Johnny Darmawan, president director of prominent Indonesia's carmaker, Toyota Astra Motor, said that he was not worried about more foreign automakers entering the country.
"I always see competition as good for business. This increased competition could lure in more investment to Indonesia,"he said.