Nissan Motor Indonesia (NMI), the Indonesia-based local unit of Japanese multinational automobile manufacturer Nissan Motor Company Ltd, started construction of a new engine and transmission parts plant in Purwakarta (West Java). The plant, which will be constructed at NMI's existing facilities in Purwakarta, covers 3,000 of square meters in size and requires an investment of around IDR 435 billion (approx. USD $33.2 million). The plant is designed to have a production capacity of 96,000 units per year.

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Sales of low cost green cars (LCGCs) are estimated to boom in Indonesia this year, supported by the launch of the Toyota Calya and Daihatsu Sigra. These multi-purpose vehicles are expected to become popular on the Indonesian market as they are relatively cheap (in the range of IDR 110 - 150 million) and have a maximum passenger capacity of seven people. According to analysts the LCGC will control 20 percent of Indonesia's car sales market before the year-end. Especially, first-time car buyers show a preference for the LCGC.

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Car sales in Indonesia grew 11.4 percent (y/y) to 91,471 units in June 2016. Henry Tanoto, Vice President Director of Toyota Astra Motor (TAM), said the increase in car sales is supported by people's eagerness to purchase a car ahead of the Idul Fitri holiday (4 - 8 July 2016). A portion of the population buys a (new) car before going on "mudik" (a term that refers to the traditional journey made by city dwellers back to their places of origin to spend a couple of days with their families during the Idul Fitri holiday, the holiday that marks the end of the Islamic fasting month).

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Domestic car sales in Indonesia (wholesales; from factories to dealers) surged 11 percent (y/y) to 87,919 vehicles in May 2016, the second straight month of rising car sales (on a year-on-year basis). However, Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), reminded stakeholders not to become too enthusiastic as the rise in Indonesia's May car sales was caused by technical factors, rather than fundamental ones. Last month, the nation's car manufacturers began to deliver new models to dealers ahead of the Idul Fitri holiday.

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Last year Indonesian President Joko Widodo emphasized the importance for Indonesia to join the Trans-Pacific Partnership (TPP) as this free trade deal - one of the world's most ambitious trade deals, covering an area that contributes about 40 percent to total global trade - will make the Indonesian economy more efficient and its exports more competitive (while also expanding the nation's export base). However, there also exist concerns about a possible participation of Indonesia in this free trade deal. One of the concerns involves Indonesia's automotive industry.

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Car sales in Indonesia grew 4.6 percent (y/y) to 84,703 vehicles in April 2016 from 81,000 vehicles in the same month last year. This is a remarkable result as monthly car sales growth (on a year-on-year basis) had been declining for 16 straight months previously. Stakeholders in the automotive industry hope that this is the start of a rebound, in line with accelerating economic growth. In the first quarter of 2016 Indonesia's economic growth accelerated to a growth pace of 4.92 percent (y/y), higher than the 4.73 percent GDP growth pace in the same quarter last year.

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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.

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Domestic car sales in Indonesia are expected to rebound in the second half of 2016 in line with Indonesia's improving macro-economy. Jongkie Sugiarto, Chairman of the Indonesian Automotive Industry Association (Gaikindo), is optimistic that the small drop in Indonesia's February car sales is a sign that the sales decline is stabilizing. In February 2016 a total of 88,250 cars were sold in Indonesia, down 0.6 percent (y/y) from car sales in the same month one year earlier. Fitch Ratings also expects Indonesian car sales to rebound this year.

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An improvement has been detected in Indonesia's car sales. According to the latest data from the Indonesian Automotive Industry Association (Gaikindo) car sales in Indonesia totaled 88,250 units in February 2016. Although this figure is 0.6 percent down from sales in the same month one year earlier, the percentage fall is the slowest since August 2014. Noegardjito, Secretary of Gaikindo, said this limited decline came on the back of Indonesia's improving economy. However, February was still the 18th consecutive month of contracting car sales in Southeast Asia's largest economy.

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Despite the country's high import tariffs and the high luxury goods tax, there remains strong demand for imports of completely built up (CBU) cars in Indonesia. As the Indonesian government is eager to limit imports of consumer goods, it set an average import tariff of 45 percent on CBU cars. Besides this import tariff the imported CBU car is also subject to Indonesia's luxury goods tax at 20 percent. However, these high taxes have done little to curtail imports of CBU cars. The real reason why some foreign-branded imported CBU cars see declining sales in Indonesia is due to weaker purchasing power.

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Within a couple of days Statistics Indonesia (BPS) is scheduled to release Indonesia’s GDP growth figure for the first quarter of 2015. Despite economic growth forecasts for full-year 2015 - both of the Indonesian government and international institutions such as the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) - signalling a rebound from the five-year low of 5.02 percent (y/y) in 2014, various analysts expect to see further slowing economic growth in Q1-2015.

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Global consulting firm Frost & Sullivan expects Indonesian car sales to grow five percent year-on-year (y/y) to 1.28 million vehicles in 2015, particularly on the rising popularity of the low cost green car (LCGC) and the USA-based company’s assumption that the economy of Indonesia will expand by 5.5 percent (y/y) this year. The LCGC was introduced on the Indonesian market in late 2013 after the government had offered tax incentives to car manufacturers that met requirements of fuel efficiency targets.

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Amid Indonesia’s slowing economic growth as well as looming higher prices of subsidized fuels (which will cause accelerated inflation and declining purchasing power), domestic car sales in Indonesia have fallen 6.3 percent to 104,916 units in October 2014 from the same month last year according to preliminary data from the Indonesian Automotive Industry Association (Gaikindo). Cumulatively, car sales reached 1.04 million units in the first ten months of 2014, a slight 1.6 percentage point increase from the same period last year.

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After Indonesian President Joko Widodo and Vice President Jusuf Kalla have confirmed that prices of subsidized fuels (gasoline and diesel) will be raised in November 2014 in an attempt to ease the country’s wide current account deficit and government budget deficit (which are primarily caused by costly oil imports), domestic car manufacturers and dealers are expected to post declining earnings in 2015. Besides the subsidized fuel price issue, Indonesia’s car industry is also negatively impacted by the country’s slowing economic growth.

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Car sales in Indonesia declined 8 percent to 98,198 units in May 2014 from 106,811 units in the previous month. The Indonesian Automotive Industry Association (Gaikindo) said that the decline was the direct consequence of several public holidays (International Labour Day and the commemorations of Buddha’s birthday as well as ascensions of Prophet Muhammad and Jesus Christ). These holidays caused a lower car production rate and a reduced number of car deliveries to wholesale dealers.

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Despite higher car prices due to the depreciating rupiah exchange rate, domestic car sales in Indonesia rose 11 percent to 107,496 in January 2014 compared to the same month last year. January sales were particularly supported by sales of the low cost green car (LCGC) and low multipurpose vehicle (LMPV). Both these car types enjoy high popularity in Indonesia. In 2013, the Indonesian government provided tax incentives for the establishment of a domestic LCGC industry.

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Indonesia's automotive industry experienced some drastic changes in recent years. Originally regarded as a mere production hub due to cheap productions costs (particularly wages), it changed into a major car sales market as per capita GDP continues to grow and gives rise to an expanding middle class. Since 2011, domestic car sales in Indonesia have reached record highs and given that the country's per capita car ownership is still relatively low, there is room for more growth. But Indonesia is also eager to become an important car exporting country.

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In 2014, Indonesia is expected to see capital inflow of between USD $1 billion and USD $1.5 billion of funds for investments in the country's car components industry. About 20 to 30 companies are eager to expand or start business in this sector of Southeast Asia's largest economy (each investing about USD $50 million). Indonesia's car industry is attractive due to record high car sales in recent years (triggered by strong domestic GDP per capita growth) as well as double-digit export growth (although coming from a low base).

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Indonesian car sales have already exceeded the one million mark in October 2013. In the January-October period, 1,018,786 car units were sold, a ten percent increase compared to car sales in the same period last year. Growing demand for cars in Indonesia indicates that this sector of Southeast Asia's largest economy is not influenced by current negative market sentiments, such as the sharply depreciated Indonesian rupiah exchange rate (against the US dollar), high inflation (8.32 percent yoy in October 2013), and slowing economic growth.

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General Motors Company (GM), the American multinational holding corporation that engages in the automotive industry, aims to expand its partnership with China's SAIC Motor Corp by joining hands to enhance business activities in Indonesia. Recently, speculation emerged that both companies were drifting apart. However, both camps claim that the relationship has never been better. In fact, GM China and SAIC are opening four new plants in China which will add 1 million cars (per year) to the current production capacity of 3 million vehicles.

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