Analysis: Car Sales in Indonesia Strong in First Four Months of 2013

	Jan - April        2012	Jan - April        2013	Growth     (YoY)
Indonesia's Car Sales (number of car units)	337,974	397,991	17.75%

	January	February	March	April	Total
Indonesia's Car Sales 2013 (number of car units)	96,705	103,284	95,936	102,082	397,991

^{Source: Agen Pemegang Merek Mobil}

Unfounded Concerns?

Year on year growth of car sales amounting to 17.75 percent demonstrates that - up to the present - concerns about a stagnating car sales market were unfounded. The new minimum down payment rule in automotive Shariah-financing, introduced for finance companies from 1 January 2013 and for banks from 1 April 2013, turned out to have a slight impact only on car sales results this year. This down payment rule involves a required down payment of 25 percent of the value of a car. Previously, down payment requirements had not been set for Islamic financing companies.

Another issue that can impact negatively upon Indonesian car sales is the hotly-debated fuel subsidy policy. Indonesia's government spends a huge amount of its state budget to keep the price of fuel artificially low. This year, the Indonesian government allocated IDR 193.8 trillion (USD $20.0 billion) to fuel subsidies, which is equivalent to 61 percent of the total amount of government subsidies. As such, it has been increasingly difficult to retain a healthy government budget balance (as it is dangerously linked to the volatile global oil price) and therefore the government has announced to increase the price of subsidized fuel in June. If it will indeed raise the fuel price then there will most likely be a fall in car sales as has been seen in 2006 when cars sales immediately plummeted 40.3 percent after the government increased the fuel price by 33 percent in late 2005. However, this was only a temporary shock. In the next years, double-digit growth in car sales returned (until the crisis in 2008). It is expected that - if the price of subsidized fuel is raised - Indonesia's car sales will recover within one or two years. This projection is supported by Indonesia's currently low car per capita ratio, while per capita GDP is rising and interest rates are affordable.

Toyota Still Clear Market Leader in Indonesia's Car Industry but Competition Lurks

Car sales of market leader Toyota - which is distributed by Indonesia's conglomerate Astra International - grew about 10 percent in the first four months of 2013. In particular its multipurpose vehicles (Toyota Avanza and Kijang Innova) are popular cars and have always dominated Toyota's car sales in Indonesia. However, Toyota has seen its market share of Indonesian car sales reduced as two other car brands post spectacular growth. From January to April, Honda and Suzuki grew 181.9 percent and 77.6 percent respectively (YoY). Despite these spectacular increases, Honda and Suzuki car sales still lag far behind Toyota and Daihatsu as can be seen in the table below, which displays sold car units per car brand:

Car Brand	Jan - April       2013	Jan - April       2012	Growth (%)
Toyota	143,677	130,317	10.25
Daihatsu	57,623	53,763	7.17
Mitsubishi	52,411	48,585	7.87
Suzuki	49,839	28,055	77.64
Honda	33,479	11,875	181.92
Nissan	20,070	22,809	-12.00
Isuzu	10,737	10,476	2.49
Total	397,991	337,974	17.75

^{Source: Investor Daily}

Astra International (ASII), which distributes both Toyota and Daihatsu cars and thus is the dominating force in Indonesia's automotive market, posted a 10 percent decline in net income (YoY) from its automotive business in Q1-2013. Despite robust demand for cars, increased competition as well as higher labor costs have led to a decline in earnings contribution from its automotive segment. According to the company, these conditions have continued into the second quarter.

Honda, on the other hand, has expanded its position in the Indonesian automotive industry with its affordable Brio hatchback subcompact (with a price tag of about IDR 160 million or USD $16,500). Its popularity led to a spectacular increase in Honda sales (YoY) in the first four months of 2013. Honda Prospect Motor is the sole distributor of Honda units in Indonesia. Other Honda cars include Honda Jazz, Honda CR-V, Honda City and Honda Civic. Suzuki's sales jumped over 77 percent (YoY) due to popularity of its latest family car Ertiga.

Forecast for Indonesian Car Sales in 2013

Gaikindo (the Indonesian Automotive Industry Association) projects that in 2013 about 1.1 million cars will be sold in Indonesia. This figure is roughly the same as last year's record result. The institution believes that the market will move sideways as the impact of new regulations will be felt (down payment and fuel price hike). Business consulting firm Frost & Sullivan, however, believes that Indonesian car sales will grow 7.5 percent in 2013 due to the country's robust economic growth, the influx of foreign investment, more attention aimed at infrastructure development, and increased production capacity of Indonesia's automotive sector. Sales growth is also estimated to be supported by the introduction of more 'low cost and green cars' on Indonesia's market.

Car sales in Indonesia have increased significantly in recent years and the country has started to threaten Thailand's position as the major car hub in the ASEAN region, although it will still take some time to take over the leading position. The increase in Indonesian car sales is one of the many signs that Indonesia's economy is booming as car sales are usually regarded as a good indicator to measure the state of the economy (as well as people's perception of an economy). Generally, rising car sales indicate that an economy is booming and people have confidence in the future state of the nation's economy.

	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}

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