Global consulting firm Frost & Sullivan expects Indonesian car sales to grow five percent year-on-year (y/y) to 1.28 million vehicles in 2015, particularly on the rising popularity of the low cost green car (LCGC) and the USA-based company’s assumption that the economy of Indonesia will expand by 5.5 percent (y/y) this year. The LCGC was introduced on the Indonesian market in late 2013 after the government had offered tax incentives to car manufacturers that met requirements of fuel efficiency targets.
Despite being popular, it had been reported earlier that the relatively new LCGC, which is fuel efficient and has a price tag of below IDR 100 million (USD $8000), still forms a small portion of total car sales in Indonesia. Between January and November 2014, the LCGC type accounted for about 14 percent of total Indonesian car sales while low-priced multipurpose vehicles remain the best-selling car type in Indonesia. As such, coming from a low base, sales of the LCGC segment still have ample room for growth in 2015 amid an expanding middle class in a country that is still characterized by a low per capita car ownership ratio but has also been facing weakening purchasing power due to several years of slowing growth.
Car sales are also expected to be boosted by improved economic performance of Indonesia in 2015. The estimated GDP growth pace of Indonesia in 2014 is 5.1 percent, thus having extended its slowing economic growth pace since 2011 when GDP growth was still at a level of 6.5 percent (y/y). However, the new Joko Widodo-led government is eager to raise economic growth to 5.7 percent in 2015 (the target that has been set in the revised 2015 State Budget). This rebound should come on the back of more public infrastructure investment as well as more (foreign and domestic) direct investment, made possible by structural reforms such as scrapping fuel subsidies to a high degree. Although this would make car ownership more expensive, it is not expected to lead to a fall in car sales, but will make the LCGC a more attractive choice. Meanwhile, current low global oil prices mean that - despite recent fuel subsidy cuts - Indonesians pay more or less the same amount of money for a liter of fuel than before the cuts.
However, the Indonesian Automotive Industry Association (Gaikindo) is less optimistic about domestic car sales growth this year as it expects sales to move sideways. In 2014 a total of 1,208,019 cars were sold in Indonesia, slightly down from 1,229,916 units the previous year. This slowdown occurred due to weaker purchasing power as Bank Indonesia raised its key interest rate (BI rate) gradually from 5.75 percent in June 2013 to 7.75 percent in November 2014 in an attempt to combat high inflation, curb the country’s current account deficit, and limit capital outflows amid monetary tightening in the USA. Moreover, sharp rupiah depreciation against the US dollar amid bullish US dollar momentum made imports of car components more expensive and thus cars became more expensive. However, the LCGC feels less price pressure due to rupiah depreciation as most car components for this type are domestically manufactured (the government stipulated that the LCGC should consist for at least 85 percent of domestically manufactured components).
Gaikindo expects that Indonesian car sales will rise to 2 million vehicles by 2020 and to 3 million by 2025.
Indonesian Car Sales (CBU):
|Month||Sold Cars 2012||Sold Cars 2013||Sold Cars 2014|
|Indonesian Car Sales
(number of car units)
(number of car units)
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