Due to various factors (including Indonesia’s slowing economic growth, the weak rupiah, low commodity prices, high domestic interest rates, and high inflation) Gaikindo had already cut its car sales target for 2015 to 1.1 million vehicles from its original target of 1.2 million vehicles. Indonesia’s May car sales fell to 79,383 units, down 2.7 percent from 81,600 cars in the preceding month.

Gaikindo’s Deputy Chairman Yohannes Nangoi said on Tuesday (09/06) that falling commodity prices resulted in limited car demand on Indonesia’s two largest and commodity-rich islands (Kalimantan and Sumatra). Java - the center of the country’s automotive industry - has now started to feel the pinch from Sumatra and Kalimantan. He added that car sales in Indonesia are expected to improve from August onward provided that the government is able to increase spending, particularly on infrastructure projects.

People’s purchasing power has been curbed by accelerating inflation. In May, Indonesian inflation reached 7.15 percent (y/y). Secondly, Bank Indonesia’s high interest rate environment makes borrowing expensive (with the key interest rate at 7.50 percent).

The heavily depreciating rupiah also impacts on Indonesia’s car industry as it makes imports expensive. Many car components are imported hence raising costs for Indonesian car producers. Given the slowing car market, it is currently difficult for car manufacturers to pass these costs on to end-users due to fierce competition between car manufacturers. The rupiah has depreciated more than 7 percent against the US dollar so far this year:

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

The clear market leader in Indonesia’s car industry remains Toyota, distributed by Astra International, with 29 percent market share in May, followed by Daihatsu (18 percent) and Honda (14 percent).

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           88,741
 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           79,383
 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          443,328

Source: Gaikindo