Several stakeholders in Indonesia's automotive industry requested the government to be more selective in terms of issuing investment licenses to foreign investors because they believe the large foreign presence in Indonesia's automotive sector curbs opportunities for domestic players. This specifically applies to car components and spare parts. Most of the world's leading car brands - led by Japanese car manufacturers - have production facilities in Indonesia. For car components they prefer imports from the mother country.

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Car sales in Indonesia grew 11.4 percent (y/y) to 91,471 units in June 2016. Henry Tanoto, Vice President Director of Toyota Astra Motor (TAM), said the increase in car sales is supported by people's eagerness to purchase a car ahead of the Idul Fitri holiday (4 - 8 July 2016). A portion of the population buys a (new) car before going on "mudik" (a term that refers to the traditional journey made by city dwellers back to their places of origin to spend a couple of days with their families during the Idul Fitri holiday, the holiday that marks the end of the Islamic fasting month).

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Domestic car sales in Indonesia (wholesales; from factories to dealers) surged 11 percent (y/y) to 87,919 vehicles in May 2016, the second straight month of rising car sales (on a year-on-year basis). However, Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), reminded stakeholders not to become too enthusiastic as the rise in Indonesia's May car sales was caused by technical factors, rather than fundamental ones. Last month, the nation's car manufacturers began to deliver new models to dealers ahead of the Idul Fitri holiday.

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Last year Indonesian President Joko Widodo emphasized the importance for Indonesia to join the Trans-Pacific Partnership (TPP) as this free trade deal - one of the world's most ambitious trade deals, covering an area that contributes about 40 percent to total global trade - will make the Indonesian economy more efficient and its exports more competitive (while also expanding the nation's export base). However, there also exist concerns about a possible participation of Indonesia in this free trade deal. One of the concerns involves Indonesia's automotive industry.

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Car sales in Indonesia grew 4.6 percent (y/y) to 84,703 vehicles in April 2016 from 81,000 vehicles in the same month last year. This is a remarkable result as monthly car sales growth (on a year-on-year basis) had been declining for 16 straight months previously. Stakeholders in the automotive industry hope that this is the start of a rebound, in line with accelerating economic growth. In the first quarter of 2016 Indonesia's economic growth accelerated to a growth pace of 4.92 percent (y/y), higher than the 4.73 percent GDP growth pace in the same quarter last year.

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Sales of tires in Indonesia are expected to remain bleak in 2016. Azis Pane, Chairman of the Indonesian Tire Companies Association (APBI), said sales of tires this year may only reach 8.5 million units (roughly the same sales figure as in the preceding year), while exports of Indonesian-made tires may fall to 30 million units (from a "normal" figure of 45 million). Domestic tire sales are highly dependent on the nation's car and motorcycle sales. Indonesia's February motorcycle sales declined 5.6 percent (y/y) to 524,864 units in February 2016, after a 17.2 percent (y/y) plunge in the preceding month.

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Domestic car sales in Indonesia are expected to rebound in the second half of 2016 in line with Indonesia's improving macro-economy. Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), is optimistic that the small drop in Indonesia's February car sales is a sign that the sales decline is stabilizing. In February 2016 a total of 88,250 cars were sold in Indonesia, down 0.6 percent (y/y) from car sales in the same month one year earlier. Fitch Ratings also expects Indonesian car sales to rebound this year.

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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.

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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.

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Astra International reported a 25 percent year-on-year (y/y) decline in net profit to IDR 14.4 trillion (approx. USD $1.1 billion) over 2015. This is the company's lowest net profit figure in the past five years. Main reasons for this weak performance is falling domestic consumption in Indonesia and persistently sliding commodity prices. Astra International, an investment holding company, is among the largest diversified conglomerates in Indonesia and regarded the barometer of the Indonesian economy due to the group's presence in various sectors.

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Car sales in Indonesia continued to decline. Based on the latest data from the Indonesian Automotive Industry Association (Gaikindo) Indonesian car sales (delivery to dealers) fell around 10 percent year-on-year (y/y) to 84,885 vehicles in the first month of the year from 94,194 units in January 2015. Retail sales, on the other hand, showed a 1 percentage point growth to 82,423 vehicles over the same period.

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The Indonesian government approved the request of Indonesia's automotive sector to be exempted from the anti-dumping duties that have been imposed on imports of steel from specific countries. Through Finance Ministry Regulation No. 65/2013 on Anti-Import Duties, the government set import duties - ranging between 7 and 55.6 percent - for steel imports from China, Japan, South Korea, Taiwan and Vietnam in an effort to protect the domestic steel manufacturing industry amid a global steel oversupply (particularly caused by a supply glut in China).

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Whereas the Indonesian Automotive Industry Association (Gaikindo), expects Indonesia's car sales to rise five percent (y/y) in 2016 on the back of improving economic conditions, US-based consulting firm Frost & Sullivan expects to see a 4.3 percent decline in the country's car sales this year as continued rupiah depreciation and persistently low commodity prices undermine Indonesians' purchasing power.

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Indonesian car sales may rise up to ten percent (y/y) to 1.1 million vehicles in 2016, from an estimated 1 million this year, amid accelerating economic growth in Indonesia. Car sales in 2015 have been disappointing, declining 18 percent (y/y) to 853,008 units in the first ten months of 2015, due to people's weakening purchasing power. Sales in 2016 are expected to be boosted by sales of the low-cost green car (LCGC), which was introduced on the Indonesian market in late-2013, and the crossover utility vehicle, a car that has gained popularity recently.

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The structure of Indonesia's automotive industry remains weak as it is too dependent on imports of raw materials, making sales prices of cars highly vulnerable to the volatile Indonesian rupiah. The automotive industry has been one of the many local industries that has been plagued by Indonesia's economic slowdown and fragile rupiah (amid looming tighter monetary policy in the USA) as people's purchasing power has weakened. In the first ten months of 2015, Indonesian car sales stood at a total of 853,008 units, down 18 percent from car sales in the same period last year.

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Indonesian automotive group Indomobil Sukses Internasional is facing challenges in 2015. The listed company, affiliated with the Salim Group (one of Indonesia’s largest conglomerates), is plagued by intense competition in the car industry of Indonesia, while it also feels the negative impact of the weak rupiah (which is depreciating against the US dollar). Over 2014, the company posted a net loss of IDR 128.2 billion (USD $9.9 million), down significantly from net profit of IDR 532.5 billion it recorded in the preceding year.

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Car sales in Indonesia declined 8 percent to 98,198 units in May 2014 from 106,811 units in the previous month. The Indonesian Automotive Industry Association (Gaikindo) said that the decline was the direct consequence of several public holidays (International Labour Day and the commemorations of Buddha’s birthday as well as ascensions of Prophet Muhammad and Jesus Christ). These holidays caused a lower car production rate and a reduced number of car deliveries to wholesale dealers.

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According to a survey of the Japan Bank for International Cooperation (JBIC), 44.9 percent of respondents assessed Indonesia as the most promising investment destination for the next three years. The respondents in this survey involved 500 Japanese companies that engage in international businesses. For Indonesia it is the first time in 21 years that it forms the preferred choice of overseas investments for Japanese companies, thus replacing China. In 2013, Japan already dominates foreign direct investment in Indonesia.

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Astra International, Indonesia's largest listed company by market capitalization, presented its Q1-2013 financial results yesterday. The company, which represents the dominating force in Indonesia's automotive sector, posted a seven percent fall in net earnings (YoY) to IDR 4,310 trillion (USD $444.3 million) amid Indonesia's rising labour costs, weak commodity prices, increased competition in the country's car sector and effects of new minimum down-payment regulations in automotive Shariah-financing.

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