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Discussions about the regulatory framework - including incentives - for the electric car industry in Indonesia are ongoing. Hence, stakeholders in the country's automotive industry are eagerly awaiting for results of government discussions and a roadmap before investing in manufacturing facilities for the launch of electric cars on the Indonesian market.
The Indonesian government is preparing a number of diplomatic moves related to the issuance of Prime Minister of Vietnam Decision No. 116/2017/ND-CP on Overseas Vehicle Type Approval (VTA). This regulation, which came into effect in Vietnam in January 2018, potentially eliminates about USD $85 million of Indonesia's foreign exchange earnings in the automotive industry up to March 2018.
The latest data from the Indonesian Automotive Industry Association (Gaikindo) show Indonesia's wholesale car sales rose 37.54 percent year-on-year (y/y) to 85,131 vehicles in July 2017. However, these data are distorted because the Ramadan and Idul Fitri celebrations fell in June this year, while they fell in July last year (implying there were much less workdays in July 2016). What were the 10 most sold cars in Indonesia in July 2017?
Indonesia’s exports of cars and components reached a value of USD $552.6 million in August 2016, up 50.3 percent (m/m) from USD $368.3 million in the preceding month when many countries celebrated Idul Fitri (marking the end of the holy Ramadan month). According to data from Statistics Indonesia (BPS), Indonesia exported a total of USD $3.72 billion worth of cars and components in the first eight months of 2016, up 1.5 percent on a year-on-year (y/y) basis. Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), said rising car exports from Indonesia continue the positive performance that was recorded last year.
The Transportation Ministry of Indonesia predicts that there will be around 18 million people traveling back to their places of origin ahead of this year's Idul Fitri celebrations (the days that mark the end of the Ramadan fasting month). This prediction is 3.3 percent higher than the flow of people during last year's Idul Fitri (17.4 million). The annual exodus of Indonesian workers and professionals from the cities back to their hometowns - to spend some days with their parents - ahead of Idul Fitri (Lebaran) is called mudik in Indonesian.
An improvement has been detected in Indonesia's car sales. According to the latest data from the Indonesian Automotive Industry Association (Gaikindo) car sales in Indonesia totaled 88,250 units in February 2016. Although this figure is 0.6 percent down from sales in the same month one year earlier, the percentage fall is the slowest since August 2014. Noegardjito, Secretary of Gaikindo, said this limited decline came on the back of Indonesia's improving economy. However, February was still the 18th consecutive month of contracting car sales in Southeast Asia's largest economy.
Despite car sales having slowed significantly in Indonesia, there are at least three automotive companies eager to invest a combined IDR 21 trillion (approx. USD $1.6 billion) to expand production capacity in Indonesia this year (either by establishing a new factory or enhancing production capacity at existing plants). In 2015 car sales in Indonesia fell 16.1 percent (year-on-year) to 1.01 million vehicles, the nation's lowest car sales figure since 2011. However, Indonesia remains the second-largest car market and producer in the ASEAN region, after Thailand.
In an effort to boost the domestic consumer goods industry, the Indonesian government today (23/07) raised import tariffs for food, cars, clothes and many other consumer goods. This seemingly protectionist measure is aimed at reducing Indonesia’s dependence on imported goods as well as to boost the country’s general economic growth, which has slowed to a six-year low of 4.71 percent (y/y) in the first quarter of 2015, by supporting development of the local consumer goods industry.
Car sales in Indonesia have declined 17 percent to 443,328 units in the first five months of 2015 according to the latest data from the Indonesian Automotive Manufacturers Association (Gaikindo), hence providing further confirmation that consumer demand has continued to fall amid the country’s slowing economic growth, depreciating rupiah and accelerating inflation. Car sales are one of the key indicators to measure people’s purchasing power as well as the general state of the economy.
Two important indicators to measure the condition of an economy are car and cement sales as both statistics provide valuable information about people’s purchasing power (and consumer confidence) as well as infrastructure and property development. In the first quarter of 2015, Indonesia’s car and cement sales declined (compared to the same period in the preceding year), triggering concern that economic growth will fall accordingly. In the first quarter of 2014, Indonesia’s GDP growth had already slowed to 5.14 percent (y/y).
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Despite higher car prices due to the depreciating rupiah exchange rate, domestic car sales in Indonesia rose 11 percent to 107,496 in January 2014 compared to the same month last year. January sales were particularly supported by sales of the low cost green car (LCGC) and low multipurpose vehicle (LMPV). Both these car types enjoy high popularity in Indonesia. In 2013, the Indonesian government provided tax incentives for the establishment of a domestic LCGC industry.
Indonesia's automotive industry experienced some drastic changes in recent years. Originally regarded as a mere production hub due to cheap productions costs (particularly wages), it changed into a major car sales market as per capita GDP continues to grow and gives rise to an expanding middle class. Since 2011, domestic car sales in Indonesia have reached record highs and given that the country's per capita car ownership is still relatively low, there is room for more growth. But Indonesia is also eager to become an important car exporting country.
In 2014, Indonesia is expected to see capital inflow of between USD $1 billion and USD $1.5 billion of funds for investments in the country's car components industry. About 20 to 30 companies are eager to expand or start business in this sector of Southeast Asia's largest economy (each investing about USD $50 million). Indonesia's car industry is attractive due to record high car sales in recent years (triggered by strong domestic GDP per capita growth) as well as double-digit export growth (although coming from a low base).
General Motors Company (GM), the American multinational holding corporation that engages in the automotive industry, aims to expand its partnership with China's SAIC Motor Corp by joining hands to enhance business activities in Indonesia. Recently, speculation emerged that both companies were drifting apart. However, both camps claim that the relationship has never been better. In fact, GM China and SAIC are opening four new plants in China which will add 1 million cars (per year) to the current production capacity of 3 million vehicles.
Car sales in Indonesia are expected to exceed the target set by the Indonesian Automotive Industry Association (Gaikindo) in 2013. The institution originally set a target of 1.1 million sold car vehicles in 2013, which is similar to the sales result in 2012. However, in September 2013 car sales recorded a new monthly record (115,921 sold units) after consumers sped up car sales as prices will increase in October. Up to the third quarter of 2013, total car sales have increased 11.2 percent compared to the same period last year.
In mid-September 2013, South Korean tire producer Hankook Tire, conducted the inauguration of its tire plant in Indonesia. The factory is located in Cikarang (West Java) and is the company's seventh production center in the world: two plants in Korea, three in China and one in Hungary. Annual production capacity of the two factories in Korea reached 46.1 million tires in 2013. Meanwhile, the three factories in China have an annual capacity of 30.8 million units each. In Hungary, annual capacity stands at 12.6 million tire units.
In recent years, Indonesia's car sales have shown robust growth, culminating in a record high number of 1.12 million sold car units in 2012. This is an important statistic because car sales inform us about the state of the economy. Generally, rising car sales indicate an expanding economy while declining car sales indicate that the economy is slowing down. When we take a look at the table below, there is a link visible between Indonesia's GDP growth and rising car sales, except for 2011 to 2012 when GDP growth declined while car sales rose.
Indonesian car sales in the first four months of 2013 continued its robust growth. Preliminary data from Agen Pemegang Merek (Brand Holder Agent or APM) indicates that from January to April of 2013 397,991 car units were sold in Indonesia, which constitutes a 17.75 percent increase compared to the first four months of 2012. Toyota retained its position as market leader with a market share of 35.9 percent. However, sales of Honda and Suzuki vehicles are growing fast in Indonesia.
The heavily subsidized fuel price of Indonesia is likely to be raised next month according to Indonesian media sources. Various high officials, including Economic minister Hatta Rajasa, discussed the possibility to raise the fuel price from IDR 4,500 (USD $0.46) to IDR 6,500 (USD $0.67) per liter starting from May. This increase will only apply to private passenger cars, and not to motorcycles and public transportation. However, president Susilo Bambang Yudhoyono has not made up his mind yet.
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