Honda Motor's (7267.T) Mobilio, a spacious yet affordable multi-purpose vehicle (MPV), has nearly doubled its market share this year, triggering a price war with Toyota Motor (7203.T) in Indonesia, the latest battleground for global carmakers.

Toyota and its Daihatsu Motor (7262.T) affiliate have long enjoyed a more than 50 percent market share in Indonesia - where car ownership is less than 4 percent in a population of close to 250 million. This emerging market with a growing middle-class keen to upgrade to four wheels from two, is a key target for global carmakers facing slowing demand in the United States and Europe.

For much of the past decade Toyota and Daihatsu were alone in offering the lower-range MPVs - dubbed 'people movers' locally - that are popular among family-oriented Indonesians. That market grip has seen off attempts by General Motors (GM.N), Nissan Motor (7201.T) and others to dethrone them.

But the Mobilio, a 7-seat MPV with a starting price of around $13,500, is now proving a serious challenger, with sales of about 67,000 since its January launch, driving the company's Indonesian market share up to 13.6 percent. Toyota Group's market share has dropped to 48.7 percent at end-September from above 54 percent five years ago, according to data from their distributor PT Astra International (ASII.JK).

Lower-range MPVs, including Toyota's Avanza and the Daihatsu Xenia, make up over a third of industry sales in Indonesia, says Davy Tuilan, marketing director of PT Suzuki Indomobil Sales, a unit of Japanese rival Suzuki Motor (7269.T).

"The Indonesian market is now more open, because everybody is ready with a product line-up in low-cost green cars (LCGCs) and the low MPV segment," he said. LCGCs are a special category in Indonesia that qualify for some tax breaks.

"LOOKS EXPENSIVE"

Mobilio drivers say the compact MPV is priced competitively, has a sleek design and offers more room than its rivals.

"It's very different from other family cars. To us, it looks like an expensive car, while it's very affordable," said Mirza Ayu, who lives with her parents and brother near the capital, Jakarta. The family bought a Mobilio in June to replace their 5-year-old Avanza.

The Mobilio's success also suggests Toyota may have become complacent in a market it has long dominated.

"Others have come out with more updated products, new products and I think Toyota has been a little lazy in introducing new models," said Mohit Arora, vice president at research firm JD Power Asia Pacific, referring to MPVs.

At a Honda dealership in Jakarta where the Mobilio accounts for around 60 percent of total sales, sales executive Agung Suriza said: "The Mobilio's exterior is fresher than its Toyota and Daihatsu competitors. The design of the Xenia and Avanza hasn't changed much for a long time."

A Toyota spokeswoman in Singapore said the group - Toyota, Daihatsu and Hino Motors (7205.T) - "sees increasing competition in Indonesia in a positive way, as a challenge to improve our products and services and to achieve higher standards in fulfilling our customers' needs."

To protect its market position, Toyota said it would improve localisation - sourcing more in Indonesia - and strengthen its sales and service network. A Toyota engineer said the company was also working on giving the Avanza a facelift as early as next year, without elaborating.

PRICE WAR

Automakers have responded to the competition with discounts.

The Avanza is being discounted by up to 10 percent, or $1,250-$1,330, dealers said - around a 50 percent increase on last year's discount and pushing its price into a lower bracket with the Xenia, which has seen sales drop by a third so far this year.

"Last year's discount was lower, but logically if there's competition we take some steps," said one Toyota dealer.

"No one's buying Xenia," acknowledged a senior Daihatsu executive in Osaka. Daihatsu's cheapest car in Indonesia starts at about $6,500. "If Suzuki began selling a car like the Alto in Indonesia, we'd be dead-meat," the executive added.

Suzuki sells its Alto hatchback in India, one of its main markets, where the model is among its cheapest at a starting price of about $4,500.

Koji Endo, Tokyo-based analyst with Advanced Research Japan, reckons Toyota and Daihatsu need to introduce a couple of models that are cheaper than those from Honda and others if they want to protect their market share.

"I think it's probably very difficult for Toyota-Daihatsu to keep 50 percent market share. Maybe 50 will decline to 45 or 40 in the next five years," predicted Endo. Indonesia contributed about 17 percent of Daihatsu's global sales in the year to March.

Honda did not respond to requests for comment, though Jonfis Fandy, marketing director at Honda Prospect Motors, attributed the Mobilio's popularity to its exterior design, power-to-fuel ratio, roomy interior and safety features. "The Mobilio has been designed mostly to accommodate Indonesian customers' needs," he said, adding Honda plans to expand the number of its dealers by 50 percent to more than 150 in the next couple of years.

Competition in Indonesia is set to intensify as automakers build or expand capacity there. Mitsubishi Motors (7211.T) said last month it would invest $600 million in a plant to make MPVs.

The industry association predicts car sales will rise 10 percent a year for five years from 2015, boosted in part by government promotion of LCGCs. Industry sales increased 2.7 percent from last year in January-September.

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