Automotive Market of Indonesia: Sales of City Cars Fall Sharply
The declining trend of city car sales continues in Indonesia. In the first two months of 2017 sales of city cars fell 41.8 percent to 2,511 units on a year-on-year (y/y) basis. This is not a new phenomenon. Ever since the low cost green car (LCGC) was introduced to the Indonesian market in late-2013, city car sales have been on the decline. In full-year 2016 city car sales had fallen 38.4 percent (y/y). A city car is a small car designed to be used primarily in (con)urban areas.
Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), says he detects a strong shift of consumers to the low-cost green car (LCGC), a shift that comes at the expense of the city car.
The LCGC is an affordable and fuel-efficient car that was introduced to the Indonesian market in late-2013 after the central government had offered tax incentives to those car manufacturers that meet the requirements of the government's fuel efficiency targets. On average, these LCGC units have a price tag of around IDR 140 million (approx. USD $10,500) making them attractive for Indonesia's large middle class segment.
However, not only the city car is a victim of the rise of the LCGC. Also the multipurpose vehicle (MPV), which - by far - is the most popular vehicle in Indonesia, felt the impact of the arrival of the LCGC although the MPV's dominating role in the nation's automotive sector will persist. The MPV is known as "the people carrier" because this vehicle is bigger and taller than other cars (it can carry up to seven passengers). Indonesians enjoy taking trips with the family (and/or invite some friends) and therefore a big car is required.
The LCGC, however, is becoming increasingly popular in Southeast Asia's largest economy, particularly due to its affordable price. Sugiarto says the price of a car will remain the most influential factor for the Indonesian consumer, in general, when buying a car as long as Indonesia's per capita GDP is below USD $4,000. This means that consumers will prefer to buy the LCGC (with a price tag of around IDR 140 million) instead of the city car that is priced in the range of IDR 150 - 200 million (approx. USD $11,000 - $15,000). Meanwhile, the size of the city car and LCGC does not differ markedly and therefore does not influence consumers' decision.
Read more: Overview and Analysis of Indonesia's Automotive Industry
Gaikindo and the government have already met to discuss new policies (for example tax policies) that can make Indonesia's non-LCGC car industry more competitive. More meetings between both sides are bound to follow in the period ahead. For Gaikindo it is important that all segments within Indonesia's automotive industry are growing, and not just the LCGC segment.
City Car Sales in Indonesia:
Indonesian Car Sales (CBU):
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