The secret to the continued robust growth of Indonesia's car industry is the introduction of the low cost green car (LCGC), which has a price tag of less than IDR 100 million (USD $8.850). The Indonesian government has been offering tax incentives to producers that meet the requirements of fuel efficiency targets. As a result, the LCGC has been on sale in Indonesia since September 2013. The government aims to turn Indonesia into the regional hub for LCGCs ahead of the start of the ASEAN Economic Community in 2015, which foresees to turn ASEAN into a single market and production base. The LCGC is also considered as one solution to the limitation of subsidized fuel consumption. For the government it is important to reduce the import of expensive oil in order to curb the country's current account deficit.

 Month    Sold Cars 2012    Sold Cars 2013
 January           76,427           96,718
 February           86,486          103,279
 March           87,917           96,009
 April           87,144          102,262
 May           95,541           99,685
 June          101,746          104,264
 July          102,511          112,180
 August           76,445           77,961
 September          102,100          115,921
 October¹          106,754          110,507
 Total          923,071         1,018,786

¹ preliminary figures
Source: Gaikindo

Due to the relatively low price of the LCGC, Indonesians have been able to continue buying cars despite the falling purchasing power amid high inflation (brought on by higher subsidized fuel prices) and the weakening rupiah exchange rate (which makes the import of spare parts and car components more expensive). The LCGC segment's contribution to car sales in October increased 10.6 percent from the previous month, while the contribution share of the traditionally popular multi purpose vehicle (MPV) toward the October sales figure declined from 34 percent to 27 percent. Currently, six LCGC models are sold on the Indonesian market, with three more models to come next year.

Low Cost Green Car Models
Astra Toyota Agya
Astra Daihatsu Ayla
Honda Brio Satya
Datsun GO+
Datsun GO
Suzuki Karimun Wagon R. Agya-Ayla

Car sales in 2013 are expected to set a new record. The Association of Indonesian Automotive Manufacturers (Gaikindo) held an initial target of 1.1 million sold cars in 2013, more or less the same as last year's record-breaking result. However, with two more months to go and the sales figure already having exceeded the one milion mark, it should be possible to reach 1.2 million sold car vehicles in 2013.

Overview of Indonesia's Car Industry

Indonesia has been experiencing an unique and important chapter in its car industry history: the country is transforming from a mere production hub into a major car sales market. Low production costs (due to low wages and cheap land) made Indonesia attractive as a production hub, but with GDP per capita reaching over USD $3,500 in 2012, the country's rapidly increasing middle class has turned into a significant consumer force. Domestic car sales reached a record-high level of over 1.1 million car units in 2012, and has recently attracted increased foreign investment in the nation's car industry. Although it is expected that the industry will feel the impact of Indonesia's slowing economic growth as well as macroeconomic policies that aim for financial stability at the expense of economic growth, Indonesia's car industry still has healthy prospects for the middle and longer term as the country's per capita car ownership is still relatively low, while per capita GDP continues to grow.

The introduction of the low cost green car (LCGC) from September 2013 constitutes a new development in Indonesia's car industry. The government provided tax incentives to LCGC producers in order to try to establish a regional production hub in Indonesia. These cars are more affordable for consumers and more fuel-efficient, thus helping the government to curb the import of expensive oil as domestic demand for subsidized fuels increased significantly in recent years. Moreover, the LCGCs are designed to consume non-subsidized fuels.

Toyota is Indonesia's clear market leader. Through a jointly controlled entity with the Toyota Motor Corporation, Astra International holds the exclusive right to sell Toyota vehicles on the Indonesian market. The country's second most popular car is the Daihatsu, which is also distributed by Astra International. As such, this company holds a powerful position in Indonesia's car market.

Top Five most sold car brands Indonesia
                 January-October 2013
Toyota              357,332
Daihatsu              154,156
Suzuki              134,428
Mitsubishi              131,407
Honda               76,888
     2008    2009    2010    2011     2012
Indonesia's Car Sales
(number of car units)
 607,805  486,061  764,710  894,164 1,116,230

Source: Gaikindo