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
 January           76,427           96,718          103,609           94,194
 February           86,486          103,278          111,824           88,740
 March           87,917           95,996          113,067           99,411
 April           87,144          102,257          106,124           81,600
 May           95,541           99,697           96,872           79,375
 June          101,746          104,268          110,614           82,172
 July          102,511          112,178           91,334           55,615
 August           76,445           77,964           96,652           90,538
 September          102,100          115,974          102,572           93,038
 October          106,754          112,039          105,222           88,325
 November          103,703          111,841           91,327
 December           89,456           97,706           78,802
 Total         1,116,230
        1,208,019          853,008


     2008    2009    2010    2011     2012     2013     2014
Indonesian Car Sales
(number of car units)
 607,805  486,061  764,710  894,164 1,116,230
1,229,916 1,208,019
Indonesian Exports
(number of car units)
 100,982   56,669   85,769  107,932  173,368  170,907  202,273

Source: Gaikindo

Further Reading:

Overview & Analysis of Indonesia's Automotive Industry