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):

 Month    Sold Cars
   Sold Cars
   Sold Cars
   Sold Cars
   Sold Cars
 January      76,427      96,718     103,609      94,194      84,885
 February      86,486     103,278     111,824      88,740      88,250
 March      87,917      95,996     113,067      99,410
 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      90,537
 September     102,100     115,974     102,572      93,038
 October     106,754     112,039     105,222      88,408
 November     103,703     111,841      91,327      86,938
 December      89,456      97,706      78,802      73,264
 Total    1,116,230
   1,208,019    1,013,291


     2008    2009    2010    2011     2012     2013     2014     2015
Car Sales
(car units)
 607,805  486,061  764,710  894,164 1,116,230
1,229,916 1,208,019 1,013,291
Car Exports
(car units)
 100,982   56,669   85,769  107,932  173,368  170,907  202,273  207,691

Source: Gaikindo