Hyundai forms joint venture in Indonesia

Hyundai Motor signed an agreement with AG Group, one of Indonesia’s largest conglomerates, on Tuesday to form a joint venture that will produce commercial vehicles for Indonesia and Southeast Asian countries.

The venture with AG Group, which currently manages Hyundai Motor’s dealerships in Indonesia, will meet the region’s rising demand for commercial vehicles as construction projects have exploded and the economy is growing.

The company will take charge of manufacturing, selling and servicing the vehicles. Hyundai Motor said the manufacturing will take the form of a complete knock down in which the local factory assembles parts that have been already made and shipped from Korea. Core auto parts like the engine, will be manufactured in the Korean plant.

Production is scheduled to begin by the second half of next year with models like the Xcient and New Mighty. Expected production capacity is 2,000 vehicles a year.

“Demand for commercial vehicles has been rising due to large-scale construction projects in Jakarta as well as aggressive mine development projects going on there,” Hyundai Motor said in a statement. “Last year, demand for commercial vehicles in Indonesia stood at 70,000 per year, but it rose to 76,000 this year. By 2020, it is expected to surpass 100,000.”

Hyundai Motor hopes to use the joint venture as a bridge to other Southeast Asian countries where the automaker sees a blue ocean for cars.

Cars made in Indonesia and exported to other countries in the Association of Southeast Asian Nations are not levied a tax, whereas cars made in Korea and exported to Asean countries are taxed a rate of 30 to 80 percent.

The auto markets of Thailand, Malaysia and other Southeast Asian countries are currently dominated by Japanese automakers, with 98 percent of the share, while showing average annual growth of 4 to 5 percent.

Acknowledging the opportunity, Hyundai Motor established a task force to explore the Southeast Asian market in October.

“We hope the latest joint venture will act as a stepping stone that help the two countries cooperate further,” said Lee In-cheol, senior vice president of Hyundai Motor’s commercial vehicles export division.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]