Despite higher car prices due to the depreciating rupiah exchange rate, domestic car sales in Indonesia rose 11 percent to 107,496 in January 2014 compared to the same month last year. January sales were particularly supported by sales of the low cost green car (LCGC) and low multipurpose vehicle (LMPV). Both these car types enjoy high popularity in Indonesia. In 2013, the Indonesian government provided tax incentives for the establishment of a domestic LCGC industry.
The government has been eager to develop this LCGC industry in Indonesia as the green vehicles (which are more environmentally friendly) will somewhat curb Indonesians' demand for (subsidized) fuels. Due to declining domestic oil output, Indonesia needs to import an ever-increasing amount of expensive oil, putting serious pressure on the country's trade balance (as well as on the rupiah exchange rate). The LCGCs, having a price tag of around IDR 100 million (roughly USD $8,000), proved to be popular on the Indonesian market. The five principal Japanese companies that entered Indonesia's LCGC industry are Toyota, Daihatsu, Honda, Suzuki and Nissan.
Indonesia's Ministry of Industry expects that LCGC sales will account for about 10 to 15 percent of total car sales in Indonesia in 2014. Total car sales this year are expected to hit another record high at around 1.3 million. In the last four years, Indonesia's car sales have hit a new record year after year (see table below).
Bad weather conditions in January 2014 were not able to prevent a surge in total car sales. In the first month of the year - amid the peak in the rainy season - severe floods and high waves at sea disrupted the distribution networks of factories and car dealers. Toyota Astra Motor (TAM), however, said that these weather conditions caused a decline in January car sales. President Director of TAM, Johnny Darmawan, stated that car sales usually show a surge prior to Imlek (Chinese New Year) on 31 January 2014. In January this year, however, the company's car sales declined.
In 2014, car sales are expected to continue to increase even though various negative sentiments linger on. The rupiah exchange rate, which fell more than 21 percent against the US dollar in 2013, makes the import of car components more expensive. As a response car dealers increase prices. Moreover, Indonesia has seen a higher interest rate environment since mid-2013 when (between June and November 2013) the central bank gradually raised its benchmark interest rate from 5.75 percent to 7.50 percent in order to combat high inflation and support the ailing rupiah.
Although continuous rising car sales is an important indicator of economic growth (particularly Indonesia's per capita GDP is growing strongly), the massive influx of cars on Indonesian roads burdens the - already weak state of - infrastructure.
Indonesian Car Sales:
|Month||Sold Cars 2012||Sold Cars 2013||Sold Cars 2014|
|Indonesia's Car Sales
(number of car units)
(number of car units)
¹ future forecast
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