Indonesian Automotive Industry: Car Sales Expected to Hit Record in 2013

Record car sales in September 2013 amounted to 115,921 sold vehicles, a 48 percent rise compared to the previous month. The rise is explained by car manufacturers' intention to raise prices in October as a reaction to the depreciating rupiah exchange rate (against the US dollar), which makes the import of spare parts and car components more expensive. Toyota, the clear market leader in Indonesia's automotive sector, is expected to raise its prices by one percent in October.

Month	Sold Cars 2012	Sold Cars 2013
January	76,427	96,718
February	86,486	103,279
March	87,917	96,009
April	87,144	102,262
May	95,541	99,685
June	101,746	104,264
July	102,511	112,180
August	76,445	77,961
September	102,100	115,921
Total	816,317	908,279

^{Source: Gaikindo}

Up to September 2013, car sales have increased 11.2 percent compared to the same period last year. This development goes against most analysts' expectations. Total car sales in 2013 were expected not to exceed last year's record sales figure of 1.1 million as several issues would negatively affect Indonesia's automotive industry. These issues include the country's higher benchmark interest rate (BI rate), the depreciating rupiah, higher subsidized fuel prices and the new minimum down payment requirements.

	Q3-2012	Q3-2013	Growth (yoy)
Indonesia's Car Sales (number of car units)	816,317	908,279	11.26%

	2008	2009	2010	2011	2012
Indonesia's Car Sales (number of car units)	607,805	486,061	764,710	894,164	1,116,230

^{Source: Gaikindo}

Meanwhile, the Citigroup has cut its forecast for car sales in Indonesia in 2014 from a 20 percent increase to 10 percent. As such, the institution expects 1.32 million vehicles to be sold next year. The downward revision was conducted due to the intention of Jakarta's provincial administration to raise taxes for car and motorcycle ownership. Moreover, Indonesia's current higher interest rate environment (after the benchmark interest rate has been raised in steps from 5.75 percent to 7.25 percent in recent months) will curb car purchases.

Indonesia's Car Industry

Indonesia has been experiencing an unique and important chapter in its car industry history: the country is transforming from a mere production hub into a major car sales market. Low production costs (due to low wages and cheap land) made Indonesia attractive as a production hub, but with GDP per capita reaching over USD $3,500 in 2012, the country's rapidly increasing middle class has turned into a significant consumer force. Domestic car sales reached a record-high level of over 1.1 million car units in 2012, and has recently attracted increased foreign investment in the nation's car industry. Although it is expected that the industry will feel the impact of Indonesia's slowing economic growth as well as macroeconomic policies that aim for financial stability at the expense of economic growth, Indonesia's car industry still has healthy prospects for the middle and longer term as the country's per capita car ownership is still relatively low, while per capita GDP continues to grow.

Toyota is Indonesia's clear market leader. Through a jointly controlled entity with the Toyota Motor Corporation, Astra International holds the exclusive right to sell Toyota vehicles on the Indonesian market. The country's second most popular car is the Daihatsu, which is also distributed by Astra International. As such, the company holds a powerful position in Indonesia's car market. Mitsubishi cars, the country's third most popular car brand, are distributed by Krama Yudha Tiga Berlian Motors.

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