Indonesians’ purchasing power and consumer confidence weaken when inflation is high thus negatively affecting car sales. In April 2015, Indonesian inflation accelerated to 6.79 percent (y/y). Inflation has been high since late 2014 due to a subsidized fuel price hike conducted by the Indonesian government aimed at assembling funds for structural economic and social development of Indonesia. Although at the start of 2015 Indonesia’s inflation level moderated, recovering global oil prices made inflation accelerate again in April.

Similarly, the relatively high key interest rate of Bank Indonesia (currently at 7.50 percent) makes it harder for consumers to purchase loans (to buy cars). Between 2013 and 2015, the benchmark BI rate of the central bank was raised gradually from 5.75 percent to 7.75 percent in an attempt to combat high inflation, limit Indonesia’s wide current account deficit, support the rupiah, and avert possible capital outflows amid looming further monetary tightening in the USA. Although Bank Indonesia cut its BI rate by 25 basis points in February it is unlikely that we will see a more aggressive rate cut this year as macroeconomic conditions are not optimal and thus purchasing power and economic growth will be limited.

The weak rupiah (against the US dollar) also forms a problem as many car components are still imported from abroad instead of manufactured locally. As such, a depreciating rupiah will raise import costs for Indonesian car producers. Recently, Indonesian car producers have not been able to pass on these costs to end-users due to fierce competition between car manufacturers.

Since 2012 Indonesian car sales have exceeded one million (per year), reflecting robust economic growth (car sales form an important indicator for consumer confidence and purchasing power), while per capita car ownership in Indonesia is still relatively low. However, due to economic troubles Indonesian car sales have declined since 2012 (when sales hit a record high at 1.23 million).

According to the latest data from Gaikindo, Indonesian car sales (wholesale) declined 14 percent (y/y) to 282,250 vehicles in the first quarter of 2015, reflecting weakening purchasing power amid slowing economic growth.

Indonesian Car Sales (CBU):

 Month    Sold Cars 2012    Sold Cars 2013    Sold Cars 2014    Sold Cars 2015
 January           76,427           96,718          103,609           94,149
 February           86,486          103,278          111,824           88,738
 March           87,917           95,996          113,067           99,363
 April           87,144          102,257          106,124
 May           95,541           99,697           96,872
 June          101,746          104,268          110,614
 July          102,511          112,178           91,334
 August           76,445           77,964           96,652
 September          102,100          115,974          102,572
 October          106,754          112,039          105,222
 November          103,703          111,841           91,327
 December           89,456           97,706           78,802
 Total         1,116,230
        1,208,019          282,250

Source: Gaikindo

The low cost green car (LCGC), which was introduced to the Indonesian market in late 2013, is expected to gain popularity this year. These cars, which are relatively immune to currency fluctuations as at least 85 percent of LCGC components are manufactured domestically, generally have a price tag of below IDR 100 million (USD $7,700). Currently LCGC sales still form a small portion of total car sales in Indonesia (about 14 percent) and therefore there is ample room for further growth.

Gaikindo Indonesia International Auto Show 2015 (GIIAS 2015)

Gaikindo will organize its first (annual) automotive exhibition in August 2015 (and fosters the ambition to make this the largest car show in Asia): the Gaikindo Indonesia International Auto Show 2015 (GIIAS 2015). This event will be held between 20 and 30 August at the Indonesia Convention Exhibition in Bumi Serpong Damai (BSD) City in Tangerang (West Java), approximately 40 kilometers from Jakarta. Reportedly, 32 car brands and 400,000 participants are expected to attend this exhibition.