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In last month’s report we saw that Indonesia’s official economic growth rate was (in line with expectations) quite strong at 5.11 percent year-on-year (y/y) in Q1-2024. Moreover, last month we also saw that most of the macroeconomic data point at the continuation of strong growth in Q2-2024 (with the only major exception being the country’s car sales data that still showed deep red numbers).
On Sunday (04.02.2024) Indonesia Investments released the January 2024 edition of its monthly report. The report offers analyses of various economic, political and social topics that are relevant in the present.
At the annual meeting of Indonesia’s central bank (Bank Indonesia) at the very end of November 2023, Bank Indonesia Governor Perry Warjiyo said the central bank is optimistic about accelerating economic growth in the next two years (2024 – 2025).
Like with most sectors, the automotive sector of Indonesia received a wave of fresh air as most of the COVID-19-related social and business restrictions were scrapped by the government at the end of 2022. And, when the government also scrapped the vaccine-booster requirement for traveling into, and across, the country in June 2023 we can argue that the COVID-19 crisis is truly over.
The risky decision of Indonesia’s central government and regional governments to (gradually) ease the various self-imposed social and business restrictions (that had been imposed in April 2020) has caused changes in economic activity in Indonesia, particularly in consumer behavior, starting from June 2020.
Also in 2017 Indonesia remained the biggest car sales market as well as the second-biggest car producer in the ASEAN region. Total car sales in ASEAN grew 5 percent year-on-year (y/y) to 3.3 million in 2017. Indonesia contributed almost one-third to the total. However, Thailand remains the dominant car manufacturer in the region, producing nearly 2 million vehicles in 2017.
Although it proves difficult for Indonesian car manufacturers to export their output to overseas markets, reflected by the declining number of local car exporters (declining from eight in 2013 to five at the start of 2018), Indonesia's car shipments have been rising steadily over the past five years. However, in absolute terms the figure remains modest with 231,169 exported car units from Indonesia in full-year 2017.
Indonesia's car sales rose 11.1 percent year-on-year (y/y) to 95,892 vehicles (wholesale) in January 2018 according to the latest data from the Association of Indonesian Automotive Industries (Gaikindo). This is a very promising start of the year as the January 2018 car sales figure is the highest January figure since 2014.
Research institute Frost & Sullivan expects car sales in Indonesia to rise 4.6 percent year-on-year (y/y) in 2018 supported by growing domestic demand for commercial vehicles, stable demand for low-cost green cars (LCGCs), the availability of affordable car prices, and the launch of new car models.
The Association of Indonesian Automotive Industries (Gaikindo) lowered its forecast for car sales in Indonesia in full-year 2017. Initially Gaikindo expected to see 1.1 million car sales in Indonesia this year. However, the target has now been revised to 1.06 million units. The revision was particularly attributed to weak sales within the (lower) middle class segment.
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The holy Islamic fasting month (Ramadan) and the weeklong celebrations that mark the end of the Ramadan (known as Idul Fitri or Lebaran in Indonesia) is important for the Indonesian economy as it is a period when people consume more than usual.
The biggest problem for western car-makers is the dominant position of Japan in Indonesia's automotive market. Japan has been dominating the Indonesian car market since the 1970s and there are no signs that this situation will change in the short or long term.
After Ford Motor Indonesia, the local unit of American car manufacturer Ford Motor Company, exited Indonesia earlier this year as the company found it too difficult to compete with Japanese counterparts on the Indonesian market, Ford found a new way to make sure its components and after sales services can be delivered in Southeast Asia's largest economy.
The government of Indonesia eyes rapid growth of car exports in the two decades ahead. By the year 2035 the government targets to see car shipments from Indonesia rise to 1.5 million vehicles (from around 200,000 exported units in 2016). By that year, exported vehicles should contribute 37.5 percent of total Indonesian car sales.
Indonesia's automotive industry is centered around Bekasi, Karawang and Purwakarta in West Java. In this area various big global car-makers invested in industrial estates as well as car and component manufacturing plants. Therefore, it has become the production base of Indonesia's automotive sector (including motorcycles) and can be labelled the "Detroit of Indonesia". Detroit (Michigan, USA) is the birthplace of the US automotive industry and is home to car giants General Motor, Chrysler, and Ford.
Indonesians love the multipurpose vehicle (MPV), known as "people carriers", as these vehicles are bigger and taller than the family car. Indonesians enjoy taking trips with the family (and/or invite some friends) and therefore a big car is required. The MPV can carry up to seven passengers and thus meets this request. Car manufacturers are aware of high MPV demand and therefore continue to launch new (and better) models. With functionality in check, manufacturers now particularly focus on improving the design of the MPV to entice Indonesian consumers.
In early 2016 Ford Motor Indonesia, the local unit of American car-maker Ford Motor Company, announced it will have completed its exit from Indonesia (and Japan) by the start of 2017. This decision was made because Ford has been unable to compete with its Japanese counterparts on the markets of Indonesia and Japan. The sudden move to exit Indonesia was not warmly welcomed by Ford Motor Co's dealers in Indonesia. The 31 Ford local dealerships demanded USD $75 million in compensation. More recently, Ford Motor Indonesia has become the center of a tax scandal.
The Indonesian Automotive Industry Association (Gaikindo) raised its target for Indonesia's car exports (completely built up units, or, CBU) to 220,000 vehicles in 2016. This figure implies Gaikindo targets to see a 6 percent (y/y) increase in car exports from 207,691 units last year. Gaikindo Chairman Jongkie Sugiarto said the global economy has started to stabilize and this should have a positive effect on Indonesia's car shipments.
One of the leading diversified conglomerates in Indonesia, Astra International, is facing challenges. Demand for cars has been on the decline in Indonesia over the past two years. This is a big challenge for the company because the automotive sector accounts for about half of Astra's total earnings. Meanwhile, its heavy equipment & mining segment and the financial services segment have been under severe pressure. Net income in the heavy equipment & mining segment plunged 55 percent (y/y) in Q1-2016, while net income in the financial services segment tumbled 46 percent (y/y) over the same period.
Astra International, one of Indonesia's largest diversified conglomerates and regarded the barometer of the Indonesian economy due to the company's presence in most sectors of the economy, posted a 22 percent (y/y) decline in net profit to IDR 3.11 trillion in the first quarter of 2016. Meanwhile, its revenue fell 7 percent (y/y) to IDR 41.89 trillion over the same period. The weak financial performance was particularly attributed to weak earnings of the company's heavy equipment unit United Tractors. Shares of Astra International fell 5.21 percent on Wednesday's trading day (27/04) to a seven-week low.
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