Indonesia's Low Cost Green Car Not as Affordable as Planned
The selling price of Indonesia's low cost green car (LCGC) has become more and more expensive. Initially, this type of car was launched on the Indonesian market in order to offer the people an affordable and relatively environment friendly car. However, rising selling prices of the LCGC and weaker purchasing power amid Indonesia's slowing economic growth trend that occurred since 2011 has made it harder for Indonesia's middle class to purchase a LCGC.
Agen Pemegang Merek (APM), an institution consisting of Indonesian car manufacturers and distributors, sets a reference price for each low cost green car (LCGC) that is released. However, the final price is determined by the local dealers and not unoften these dealers set prices that exceed the reference rate. Besides final prices being determined by dealers, the reference prices of APM have also been rising (for example due to inflation and exchange rate fluctuations), making some LCGCs more expensive (or with a similar price) than the non-LCGC vehicle.
For example, the Toyota Agya TRD S A/T (a LCGC) can now be bought at a price of IDR 136.7 million. This is nearly the same price as the new (non-LCGC) Kia All New Picanto (IDR 143.5 million). However, when launched in 2013 the Toyota Agya was priced IDR 120.8 million (implying a 13.2 percent price increase within 3 years). Meanwhile, the Brio Satya E CVT (a LCGC launched by Honda) now costs nearly IDR 150 million. Jonfis Fandy, Marketing and Aftersales Service Director at Honda Prospect Motor, said this higher price is also explained by the fact that the Brio Satya vehicle is an automatic one. Moreover, usually customers have additional requests that cause a higher final selling price. Lastly, costs related to administrative matters and distribution (especially if the buyer lives in the rural area) add to the final selling price.
A 2013 Industry Ministry Regulation (No.33/M/IND/PER/7/2013) allows an annual price increase for LCGCs. However, this regulation sets no maximum boundary for the annual increase, hence leaving the price mechanism for LCGCs up to market forces of demand and supply.
The latest data from the Association of Indonesian Automotive Industries (Gaikindo) show that sales of LCGCs have declined. Sales of LCGCs in Indonesia jumped from 51,180 units in 2013 (the car was introduced in late-2013) to 172,120 units in 2014. However, in line with the overall decline in car sales in Indonesia, sales of LCGCs fell to 165,434 units in 2015. This decline continued into the first quarter of 2016. In Q1-2016 a total of 41,301 LCGCs were sold, down a modest 0.60 percent (y/y) from 41,549 units in the same quarter one year earlier.
Sales of Low Cost Green Cars in Indonesia:
| Q1-2015 |
Q1-2016 |
|
| LCGC Sales Indonesia |
41,549 | 41,301 |
| 2013 |
2014 |
2015 | 2016¹ | |
| LCGC Sales Indonesia |
51,180 | 172,120 | 165,434 | 41,301 |
¹ Q1-2016
Source: Gaikindo
The LCGC was introduced on the Indonesian market in late-2013 after the government had granted tax incentives to those car manufacturers that meet requirements of fuel efficiency targets. This policy was one of the government's strategies aimed at curbing costly fuel imports amid rising domestic fuel consumption. Initially, prices averaged around IDR 100 - 120 million (approx. USD $8,000) for one LCGC vehicle. Gaikindo targets a production rate of 400,000 LCGCs per year. However, it already signaled that this target cannot be achieved in 2016, partly due to the sluggish macroeconomic context.
Prices of Low Cost Green Cars in Indonesia:
| Low Cost Green Car | Low (in million IDR) |
High (in million IDR) |
| Toyota Agya | 114.0 | 136.7 |
| Daihatsu Ayla | 88.1 | 128.4 |
| Datsun Go & Go+ | 94.6 | 118.5 |
| Honda Satya | 129.6 | 149.6 |
| Suzuki Wagon R | 102.5 | 132.5 |
Source: APM
Read more: Overview of Indonesia's Automotive Industry