Automotive Industry of Indonesia: Weak Car Sales Expected to Continue in 2025
Ever since the second half of 2023 car sales in Indonesia have been quite disappointing. While in recent years Indonesia had become used to seeing more than one million cars being sold across the country per year (excluding the COVID-19 crisis period), sales now seem to have stabilized around 850,000 units per year in the 2024-2025 period.
Weak car sales actually hint at economic trouble. After all, when consumers are enjoying sufficient incomes and are optimistic about their (near) future economic conditions, then they are willing to buy a relatively expensive (durable) item, such as a car or motorcycle. Therefore, rising car sales are a positive matter for the economy. A slowdown, however, suggests the contrary: a decline in consumers' purchasing power and a decline in consumer confidence.
Moreover, car sales can also bring the multiplier effect, meaning that direct investment in the automotive industry becomes attractive for foreign and domestic investors (thereby creating jobs), while people who buy cars often start consuming more (for example because they make car trips for leisure, thereby boosting economic activity).
Unfortunately, Indonesian car sales have been weak since the second half of 2023. And a number of factors might be behind this phenomenon:
- Bank Indonesia's high interest rate environment (which is related to the still high interest rates in the United States) makes it more difficult (read: expensive) for Indonesians to buy a car (as most car sales involve a loan).
- Rupiah weakness in recent years (due to the strong US dollar) has made cars more expensive as many car parts and components need to be imported in US dollars.
- Indonesia organized legislative and presidential elections in 2024, and also in past election years (2014 and 2019) we saw a dip in car sales as people might be in a wait-and-see mode. After all, the 2014 and 2019 presidential elections were quite polarizing events.
- There are reports about (persistently) weak purchasing power of the middle class segment in Indonesia.
- High interest rates made financial institutions more careful disbursing credit for car purchases as these institutions want to protect healthy non-performing loan ratios.
- The VAT rate hike for luxury goods (from 11 percent to 12 percent per January 2025) makes it more expensive for people to buy luxury cars (although these only constitute a small portion of total car sales in Indonesia). On the other hand, there are attractive incentives for purchases of hybrid and electric cars.
- A new regional surcharge (an additional tax that is locally known as 'opsen') kicks in on motor vehicles in 2025 (based on Law No. 1 of Year 2022 on Financial Relations Between the Central and Regional Governments).
Car Sales in Indonesia (Retail Sales):
| Month | 2022 | 2023 | 2024 | 2023-2024 Change |
| January | 78,568 | 90,892 | 78,214 | -13.9% |
| February | 69,989 | 84,029 | 70,291 | -16.3% |
| March | 89,947 | 96,502 | 74,724 | -22.6% |
| April | 81,616 | 68,552 | 58,779 | -14.2% |
| May | 61,558 | 82,559 | 72,137 | -12.6% |
| June | 83,579 | 80,021 | 70,198 | -12.3% |
| July | 86,246 | 80,416 | 75,609 | -6.0% |
| August | 91,104 | 88,865 | 76,808 | -13.6% |
| September | 95,426 | 80,972 | 72,366 | -10.6% |
| October | 89,651 | 79,451 | 73,443 | -7.6% |
| November | 87,633 | 87,773 | 76,053 | -8.1% |
| December | 103,891 | 89,586 | 82,094 | -8.3% |
| Full-Year | 1,019,208 | 1,009,619 | 889,680 | -10.9% |
Source: Gaikindo
The Association of Indonesian Automotive Manufacturers (Gaikindo) announced in early January 2025 that car sales (retail; from dealer to consumer) in Indonesia reached a total of 889,680 units in full 2024, which is a 10.9 percent year-on-year (y/y) decline from the preceding year. This does mean that Gaikindo's car sales target was met. However, this target was cut by Gaikindo in Q4-2024 from 1.1 million vehicles initially, to 850,000 vehicles amid weak car sales.
Gaikindo also announced its car sales projection for 2025, namely at the range of 750,000 to 900,000 units, implying more-or-less the same situation for 2025 as it was in 2024, although this wide range with a bottom threshold of 750,000 also implies that car sales might be dragged down further.