Indonesia's car sales falter

The automotive boom in Indonesia takes a break, declining by 11 percent in the first of 2019. In the long term however, sales will increase. Investment by Asian manufacturers should further boost exports.

In the first half of 2019, retail sales of automobiles in Indonesia declined by 11.1%compared to the same period in the previous year. For passenger cars (cars), the decline was even 13%. This has been announced by the Indonesian Automobile Association Gaikindo. Accordingly, there were significant declines in production figures and in wholesale trade.

The numbers turned out surprisingly bad because, at the beginning of the year, market observers still considered a slight sales growth possible. Gaikindo only expected a slight market decline. Now only 43.7% of the annually forecasted sale was achieved in the first six months of 2019. The reason given by the association is the slight economic slowdown as well as the presidential election, which lasted until mid-April and which has employed many people and thus preventing them from making a purchase.

All product categories posted declines, including cars, trucks, buses and pick-ups. The tax-favored Low Cost Green Cars (LCGC) achieved the best result with a minus of only 6%. Nearly all manufacturers register a decline in sales. The only exception is Isuzu, which has been producing in the country since 2017. The Chinese brand increased its sales by 17% to just under 9,000 and has already left Nissan behind. Wuling has built up a dense network of dealers in the archipelago within a very short time.

The only category with a plus is exports. Exports of complete cars (Completely Built-Up or CBU) increased by almost 22%. This is because Indonesia is increasingly being developed by Japanese manufacturers to be an export hub. By contrast, the hurdle-laden import shrank by almost a third. Exports and imports were almost balanced in 2013. Since then, exports have been rising and imports falling. By the end of 2019, exports could already more than quadruple imports.

Target of 1 million car exports
Despite the currently cooled-down automotive market, the medium and long-term outlook of the industry is expanding. The Indonesian economy is expected to grow over 5% over the next few years. In addition, despite the crowded streets, the automobile is still a significant status symbol for the emerging middle class.

The archipelago has ambitious plans for its motor vehicle production. According to the Ministry of Industry, the milestone of 1 million export automobiles is to be reached by 2025. That would be a quadrupling of today's numbers. If the pace of expansion of recent years is maintained, even half of that target should be more than likely.

According to numerous media reports, Hyundai is building a new plant in West Java, which is said to produce at least half of its output for export. The company declined to confirm this on request. Meanwhile, the ministry is persistently calling potential investors who are interested in Indonesia as a production location.

Incentives expected for producers of electric vehicles
The archipelago wants to be a part of the future market for electro-mobility. According to the Ministry of Industry, it is negotiating with numerous manufacturers, including the Chinese companies BYD and JAC, for which Indonesia could become a potential production location in the course of the trade war between China and the USA. Also, Toyota is said to be planning a US$2 billion investment to develop electric vehicles in Indonesia.

In order to become a production location for battery-powered automobiles and hybrid models however, state incentives are needed. And in this regard, the government has promised to pass laws to promote them in the coming months. In particular, there is demand for customs relief for corresponding components and tax cuts for investors in the segment.

For the foreseeable future, there will be no appreciable number of electric vehicles on Indonesia's roads, which remains too expensive for most local consumers. Moreover, apart from a few exceptions, there is practically nothing in the way of supporting infrastructure. Meanwhile, more than 60% of the electricity in the country is still generated by coal.

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.