Indonesia is being embraced as a major expansion market for car manufacturers, but will the country's infrastructure bottlenecks hinder their progress? WSJ's Deborah Kan discusses with Eric Bellman.

JAKARTA, Indonesia—The world's top car makers are in the middle of an expansion spree in Indonesia, battling for a piece of the world's next auto hub.

Toyota Motor Corp. tm +0.49% and other Japanese auto makers have dominated the Indonesian market for decades. But General Motors Co. GM +1.61% , Ford Motor Co. F +2.40% , Tata Motors Ltd. ttm +1.83% and others are trying to wedge their way in. They have plans for new plants, new models or new dealerships, aimed at reaching the emerging middle class in Indonesia.

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Toyota on Wednesday said it would invest $200 million in Indonesia beyond expansion plans announced last year. Bloomberg News

Toyota on Wednesday said it would invest an additional $200 million beyond expansion plans announced last year, lifting its Indonesia capacity to 230,000 vehicles annually by 2014. That would more than double today's output.

With overall Indonesian auto sales expected at nearly one million vehicles next year, the country is becoming one of the world's largest car markets. More important, its low auto-ownership rate means Indonesia—the world's fourth most-populous nation, behind China, India and the U.S.—could be one of the world's last great growth markets.

Less than one in twenty of Indonesia's mostly young and increasingly affluent population of 240 million people owns cars. As strong growth in gross domestic product puts cars within reach to more Indonesians, the country could quickly become a three-million-car-a-year market in the next decade, analysts say. Although that isn't on the scale of China, where 18 million light vehicles were sold last year, the Indonesian market is expected to expand faster.

"This is going to be a period of unprecedented growth in Indonesia," says Peter Fleet, president for Ford's operations in Southeast Asia, which recorded 90% growth in sales in Indonesia last year. "With the low level of car ownership in the country and the GDP per capita growing, it is at a takeoff point."

Auto companies need new markets to offset slowdowns in their home countries and expected leveling in India and China over the next few years. Indonesia's economy and auto sales are expected to continue climbing at a rapid pace this year even as developed economies struggle, largely because much of Indonesia's economy is driven by domestic demand rather than exports to the West.

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Indonesian auto sales are expected to approach one million vehicles next year and triple in the next decade. Bloomberg News

Indonesia attracted a national record of $20 billion in foreign direct investment last year as its GDP rose 6.5%. Moody's last month upgraded Indonesia's debt to investment grade—another sign of Indonesia's economic coming of age.

Light-vehicle sales climbed 17% to nearly a record 900,000 units in Indonesia last year. Meanwhile, sales fell in Japan, rose just 2% in Thailand and climbed less than 10% each in China, India and the U.S., according to consulting firm LMC Automotive.

GM is investing $150 million to reactivate a plant to produce a seven-seat van in Indonesia after having left the country seven years ago. The plant will produce 40,000 vehicles a year for local consumption and for export.

"Building and selling great new products that are suitable to Indonesian customers will enable us to keep up our growth in this important market," said GM Indonesia spokeswoman Maria Sidabutar.

China's Zhejiang Geely Holding Group Co. is looking to expand its vehicle-assembly capacity in Indonesia. India's Tata said last month that it plans to bring its iconic Nano minicar to the country.

Ford doesn't produce cars in Indonesia—shipping from nearby production hubs instead—but it is considering the possibility. Ford unveiled its popular Fiesta brand in the country last year and plans to introduce other models soon as it expands its dealership network 20% this year, Mr. Fleet says.

South Korea's Hyundai Motor Co. expects its sales will climb around 35% and is considering building a factory in Indonesia, said Jongkie Sugiarto, president director of PT Hyundai Mobil Indonesia. "If our parent company agrees, Indonesia will have a Hyundai manufacturing plant instead of just an assembly plant to produce a model aimed at the Southeast Asian market," he said.

Japanese auto makers moved into Indonesia before most other car makers and stuck it out through the Asian financial crisis and other economic and political instability. As a result, Japanese companies now control about 90% of Indonesia's market. Toyota alone controls 60%.

The Japanese manufacturers see Indonesia as an important source of demand and production as they face rising costs at home and increasing competition from India and China.

"It is like holy ground for Japanese auto makers," says Michael Dunne, president of auto consulting firm Dunne & Co. "They will not cede it without a fight."

Suzuki Motor Corp. 7269.TO -0.35% last month said it will spend $780 million to almost double its capacity in Indonesia to 150,000 four-wheeled vehicles a year. The Japanese company said it also is in the early stages of negotiations with the government for tax incentives that would allow Suzuki to start producing a small eco-friendly car in Indonesia.

Nissan Motor Co. 7201.to -0.63% and Daihatsu Motor Co. 7262.to +0.34% also are expanding capacity.

Toyota celebrated its 40th year in Indonesia last year with groundbreaking on a new factory, part of a $340 million expansion plan.

"We are not concerned about the newcomers," says Irwan Priyantoko, Toyota's chief of corporate planning in Jakarta. "Indonesia now is a very important market for us and we are happy it's getting bigger."

Indonesia is hoping to follow in the footsteps of Thailand, which has used favorable government policy and infrastructure to attract investment and become one of the world's biggest sources for vehicles, especially pickup trucks.

"We want to multiply our auto-manufacturing production to become an export hub for at least some of the signature models," says Indonesian Trade Minister Gita Wirjawan. "We definitely can catch up [with Thailand], particularly with tax facilitation and supportive regulations we already, and will, have in hand."

Executives warn that the government needs to do more—particularly to refresh outdated infrastructure and clear up obtuse regulations—if it wants to stay on the fast track. Toyota says Jakarta's port already is stretched to capacity and won't be able to handle increased trade.

And challengers to Japan's domination here could face a rocky road. Ford and GM have been trying to crack the Thai market for more than a decade but combined still have less than 10%, analysts say.

Still, if capacity increases as planned over the next three years, Indonesia's auto sales could climb as high as 1.5 million vehicles, according to analysts. That could make the country Asia's fifth-largest auto hub, behind China, Japan, Korea and India.

"No one wants to look back and say, 'How did we miss it?,' " says Mr. Dunne, the consultant.

Write to Eric Bellman at eric.bellman@wsj.com