Fitch Ratings & Gaikindo Expect Indonesia's Car Sales to Rebound
Domestic car sales in Indonesia are expected to rebound in the second half of 2016 in line with Indonesia's improving macro-economy. Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), is optimistic that the small drop in Indonesia's February car sales is a sign that the sales decline is stabilizing. In February 2016 a total of 88,250 cars were sold in Indonesia, down 0.6 percent (y/y) from car sales in the same month one year earlier. Fitch Ratings also expects Indonesian car sales to rebound this year.
Both Gaikindo and Fitch Ratings expect to see improving purchasing power as well as improving consumer confidence in Indonesia this year on the back of accelerated economic growth. Most domestic and international institutions put their GDP growth forecasts for Indonesia in the range of 4.9 - 5.3 percent (y/y) in 2016, up from a 4.79 percentage point GDP growth realization in 2015 hence marking the end of Indonesia's five-year economic slowdown. Acceleration in economic growth is primarily supported by government spending on infrastructure development projects.
Apart from accelerated GDP growth, purchasing power in Indonesia will also rise due to Bank Indonesia's decision to cut its interest rate environment by 25 basis points at its March policy meeting. In the preceding two meetings Indonesia's central bank had also cut rates by 25 basis points, each. The lower benchmark BI rate (now at 6.75 percent from 7.50 percent at the year-start) will make it less expensive to borrow money for the purchase of a car. It is estimated that about two-thirds of car purchases in Indonesia are done using a car loan.
However, given that commodity prices are still weak, demand for commercial cars may not rebound yet. But even here is some reason for optimism because prices of various commodities have gone up in recent weeks (in line with the recently rising trend of crude oil prices). Furthermore, the government's push for infrastructure development should boost demand for commercial vehicles in the construction sector. This may be able to offset the negative impact of low commodity prices on Indonesian car sales.
Both Gaikindo and Fitch Ratings expect Indonesian car sales to grow by about 5 percent (y/y) to a maximum of 1.1 million cars in 2016.
Further Reading: Overview & Analysis of Indonesia's Automotive Industry
Regarding Indonesia's car exports, Sugiarto said there occurred a 33 percent (y/y) drop to 22,246 cars in February from 33,459 cars that were exported in the same month one year earlier. According to Sugiarto this decline was caused by weaker purchasing power in the Middle East, one of the biggest markets for Indonesian-made car. Purchasing power in this region had weakened due to cheap oil. Gaikindo says it is important for the nation's car manufacturers to find new export markets. Based on the government's roadmap for the automotive industry, Indonesia will produce a total of 2.5 million vehicles by the year 2020. To achieve this target it is vital to boost the nation's car exports. This year Indonesian car exports may fall to 200,000 units.
Indonesian Car Sales (CBU):
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