VW’s Indonesian Venture May Build New Car Factory

Volkswagen AG and its Indonesian joint venture partner, PT Indomobil Sukses Internasional tbk., plan to erect a new assembly plant in Cikampek, West Java, to produce low-emission MPVs, according to Indonesian Industry Minister Mohamad Hidayat.

The venture, PT Garuda Mataram Motor (GMM), already assembles small passenger vehicles from kits at a facility in Jakarta and distributes VW and Audi vehicles in Indonesia.

Hidayat tells reporters that VW will unveil the project late this year and begin construction in 2014. He estimates the initial phase of the factory will cost €200 million ($268 million) and open in 2016 or 2017. Another government official says the plant might eventually build more than 50,000 vehicles per year for the local market and other countries in southeast Asia.

The West Javanese facility is likely to build vehicles that would qualify for the country's "green" car program, which grants sales tax cuts ranging from 25% to 50% on locally made low-emission models, Hidayat says. Analysts suggest the factory is likely to produce the MPV or SUV variant of the VW Up! city car.

VW has said expansion in Indonesia and other emerging markets is crucial to reaching its annual sales goal of 10 million vehicles by 2018. The country's auto sales climbed 12% year over year to 714,400 units in the January-July period of 2013, according to Jakarta-based automaker group GAIKINDO.