Car sales in Indonesia keep falling

With only 43 cars per 1,000 people in Indonesia, automakers have had their eyes on Indonesia as a key emerging market in Asia Pacific. But lack of consumer confidence, high lending rates and inflation meant that sales have fallen short of expectations. Despite carmakers slashing prices and curtailing production, their inventories are brimming.

Even during the holy Ramadan month, which is usually a time for carefree spending, had not brought the boom it usually does in Indonesia. Car sales fell by 25.7% year-on-year in June, making it the tenth straight month that registered decline, according to the Association of Indonesian Automotive Manufacturers. Inflation rose to 7.26% in June while the central bank kept interest rates at a 7.5% high, reducing the purchasing power of Indonesia citizens.

Lower priced models are, however, faring better. Honda’s new MPV, the Mobilio, launched at the start of 2014, has wrested some of Toyota Avanza’s market share. The MPV’s are popular amongst cost-conscious families and corporations. Honda had previously offered only mid to high-end models, but with the Mobilio, they are starting to weaken Toyota’s dominance. Honda has the third highest sales number in Indonesia, after Toyota and its subsidiary Daihatsu, which together have been dominating almost half of the market. In June, however, Toyota’s market share fell to 29%, compared to 36% in 2014, while Honda’s number climbed to 18% compared to 16% last year. Astra International, the local manufacturer and distributor for Toyota and Daihatsu marques, saw a decline of 21% in net income during the first quarter of 2015, and will have an estimated profit margin of 0.9% for 2015, compared to 1.9% in 2014; a company spokesperson had attributed the falling numbers to increased competition.

It isn’t all doom and gloom, though. Recent news from the Bank of Indonesia bears good tidings for the automotive sector. In a bid to drive the Indonesian economy, the central bank recently lowered the minimum downpayment percentages for big ticket items – ie. property and motor vehicles. The loosened lending requirement is expected to boost automotive sales in the second half of 2015 alongside the growth of middle income earners.

At least one Chinese automaker still foresees potential in the Indonesian market, and is about to offer more competition to Toyota and Honda in the MPV segment. Indonesian investor, Sokonindo Automobile, and DFSK, a JV company between China’s Dongfeng Motor Group and Chongqing Sokon Motor Group, is completing a US$150 million assembly plant in Tangerang, Banten. The plant is expected to start trial production of MPV’s bearing the Sokon marque and will manufacture 50,000 vehicles each year during Phase 1.

top image: Jakarta Post