14 June 2022 (closed)
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Production of cars in Indonesia is expected to decline 15 percent (y/y) to an estimated 1.1 million vehicles in 2015, far below the target (1.6 million vehicles) set in the automotive industry roadmap desinged by the Indonesian Industry Ministry. This drop is due to the slowdown in car sales in Southeast Asia's largest economy. Slowing economic growth, which dragged down Indonesia's gross domestic product (GDP) growth to a six-year low, resulted in weakening purchasing power of Indonesian consumers.
Noegardjito, Secretary of the Indonesian Automotive Industry Association (Gaikindo), said the government's decision to raise the price of subsidized fuel in late 2014 also contributed to weakening purchasing power in Indonesia as inflation flared up. In the January-October 2015 period, Indonesian car sales stood at a total of 853,008 units, down 18 percent from car sales in the same period last year.
Through the automotive industry roadmap Indonesia targets to achieve a car production level of 2.6 million units per year by 2020. However, it is highly unlikely that this target can be achieved within a four-year period.
Indonesia is eager to top Thailand as regional leader (ASEAN) in terms of car production and export. Thailand produces over two million car units each year, while Indonesia is estimated to produce 1.1 million cars this year. Meanwhile, Thailand exported 1.1 million cars in 2014, while Indonesia only exported 202,273 vehicles last year. These figures indicate there is still a huge gap between both countries.
Indonesia has an installed car production capacity of 2 million vehicles per year, implying that the country currently only uses slightly over half of its total production capacity. It would be perfect if Indonesia could use its production capacity to manufacture cars for export purposes. However, I Gusti Putu Suryawirawan, Director General of Metal, Machinery, Transportation Equipment and Electronic Industries at the Industry Ministry, said it is hard for Indonesia to boost its export performance as Indonesia primarily produces the multipurpose vehicle (MPV) for which demand is low in export markets. Popular cars for export purposes are the sedan and sport utility vehicle (SUV).
Suryawirawan says domestic sales of the SUV and sedan should rise in order to encourage investment in SUV and sedan plants. To accomplish this, the government should offer attractive incentives. For example by lowering the luxury tax. Currently, a 30 percent luxury tax is levied on sedan purchases, much more than the 10 percent tax on MPV cars. Another incentive would be to make it cheaper for raw materials to be imported into Indonesia for the manufacturing of sedans that will be exported abroad.
Research from the Boston Consulting Group (BCG) shows that the Indonesian government fails to provide enough incentives to encourage the domestic automotive industry.
Indonesian Car Sales (CBU):
|Month||Sold Cars 2012||Sold Cars 2013||Sold Cars 2014||Sold Cars 2015|
|Indonesian Car Sales
(number of car units)
(number of car units)