LCGC Continues to Drive Indonesia’s Auto Industry

Despite the rising costs, higher loan interests and slow economic growth, Indonesia’s automotive industry is expected to experience a decent growth in 2014, largely due to the LCGC programme that continues to drive the industry by opening up the low-to-medium income market.

According to a Nielsen survey reported recently by The Jakarta Post, Indonesians ranked third amongst 60 countries as the most aspirational car owners (from not owning one), after India and Brazil. Indonesia’s aspiration index measures 96% while the average of the countries surveyed is at 77%. The survey reports that this strong longing to own a car stems from both pragmatic and impractical reasons, including long commutes and perception of social status. About 91% of non-car owners admitted that it was “embarrassing” to not own a car. In neighbouring countries, Malaysia, Thailand and the Philippines respectively, the corresponding figures are drastically lower, that is 33%, 21% and 21%.

According to Anil Antony of Nielsen Indonesia, manufacturers should be careful not to promote cheap vehicles when the motivation to purchase a car is driven by social status desires. Prudent advice indeed, especially as we have seen Tata Nano fail miserably in India where even the ‘poor’ did not want to buy a cheap car (read also Is Tata Nano Salvageable?). Perhaps this is where the LCGC has succeeded, as it appears to be promoting the idea of a green vehicle that is affordable, due to the tax exemption, rather than a cheap car that is green; minor distinction, major difference.

Nissan CEO Carlos Ghosn announcing the additional investment in 2012

Even Japanese automaker, Nissan, is confident about the future of Indonesia’s automotive industry, evident by the launch of its second manufacturing plant on 8 May 2014. The new facility entails an investment of approximately USD324 billion and will more than double its existing production capacity of 100,000 to 250,000 units annually. Part of this capacity will of course go towards building LCGC vehicles, which Nissan has confirmed that it has received the license for. The Japanese marque recently revived the Datsun brand in Indonesia, and the new Purwakarta assembly plant has begun to manufacture the Datsun GO+ Panca, a seven-seater MPV which qualifies as an LCGC vehicle (read also Datsun Returns) and will retail for USD7,400. Nissan aims to sell 90,000 units of its vehicles domestically.

The highly successful LCGC programme is a government initiative that exempts luxury tax, which ranges from 10% to 75%, for cars of 1200cc or less and a minimum fuel consumption of 20km/l. However, we are interested to see whether this programme will continue in the same manner or will be tweaked if Joko Widodo, anti-LCGC proponent, is elected as the country’s next president come 9 July 2014 (read also Indonesia: The Next Detroit Of The East?).