Indonesia: Car sales to be driven by cheap financing next year

Jakarta Globe - Indonesia's automotive sector faced challenges this year as major supplier countries Japan and Thailand suffered natural disasters, but a combination of a strong economy and cheap financing helped to boost sales of cars and motorcycles.

An earthquake and subsequent tsunami in Japan in March disrupted production, and Thailand suffered its worst flooding in 70 years during the second half of the year. The impact was felt by Indonesian car companies, many of which source the majority of their components from Japan and Thailand.

Between January and October, domestic car sales reached 746,000 units, overtaking the 713,000 in sales in Thailand to become Southeast Asia's biggest automobile market, according to Asean Automotive Federation data.

"It was growing so fast that we couldn't even keep up with demand," said Jongkie Sugiarto, president director of Hyundai Mobil Indonesia.

The company was one of the few that wasn't affected by the two disasters abroad, and it sold all 5,000 of the units that it had this year. Jongkie said that was a 35 percent increase on its sales from 2010.

"We could easily have sold 6,000 units this year," he added.

The government forecast Indonesia's economy to grow 6.5 percent this year, after expanding 6.1 percent in 2010.

Further spurring automotive demand, banks' lending rates have fallen after the central bank's recent rate cuts to all-time lows to protect the economy from a slowdown in Europe and the United States.

Low interest rates have been fueling the rise in sales, Jongkie said, and the trend is expected to continue next year.

"Now, we're hoping that the rupiah will strengthen because car prices will become cheaper," he said.

"In a market where total car sales are expected to reach 970,000 units in 2012, Hyundai could sell 7,000 units."

The Association of Indonesian Automotive Industries (Gaikindo) said that car sales this year were likely to reach 880,000 units, exceeding an earlier target of 850,000. The Indonesia Motorcycle Industry Association (AISI) forecast motorcycle sales to reach 8.2 million units in 2011, up 10 percent from last year.

That is equal to around 100 cars and 900 motorcycles being sold every hour each day of the year. And those figures could increase even more with at least $1.8 billion in investment for the automotive sector slated to come into Indonesia.

Toyota Astra Motor, the license holder for Toyota cars, is aiming to keep its market-leading share at 35 percent next year. In the January-November period it sold 285,000 units for a 35 percent share.

"Our target this year and next remain the same. We hope that Thailand can recover by the first half of next year so that we can meet our target," said Johnny Darmawan, president director of Toyota Astra Motor.

Manufacturers such as Honda Motor have yet to resume operations since waters receded this month in Thailand's Ayutthaya province.

Honda Prospect Motor, the license holder for Honda, is expecting a rough start to next year, with most Honda cars being made in Thailand.

"We're expecting a slow start entering 2012 as we wait for Thailand to recover. We're going to push sales in the second half," said Jonfis Fandy, director of marketing at HPM.

He added that as of November, Honda had sold 43,000 units. It sold 61,000 units in all of 2010.

Indonesia has already overtaken Thailand in terms of sales, and the rise of Indonesia as an auto nation is reflected in investor confidence through auto-related stocks.

Shares of Astra Internasional, Indonesia's biggest automotive distributor, have risen 35 percent this year to Rp 73,250, as of Wednesday's close in Jakarta.

Indomobil Sukses Makmur has surged 77 percent to Rp 13,350, and tire maker Multi Strada Arah Sarana has jumped 52 percent to Rp 500. The nation's benchmark stock index has gained almost 2 percent this year.

Honda of Japan was quoted as saying in a World Bank report this month that Indonesia's automotive industry was now one of the key sectors driving manufacturing. Many factors have contributed to this, not least of which being that Indonesia will soon become the largest car market in Asean, as well as already being the world's third-largest motorcycle market, according to the report.

Indonesia, which has the biggest economy in Southeast Asia, has the region's biggest population at about 240 million people.

Still, it remains to be seen whether car companies will be able to bring new models to market anytime soon in the aftermath of Thailand's floods.

"It will definitely have an impact such as delaying the introduction of new models, but I am optimistic that car manufacturers will still introduce new models," said Joko Trisanyoto, marketing director at Toyota Astra.