The automotive industry in Indonesia collapses in the first half of 2020

The year 2020 will leave a deep break in the production and sales curve of Indonesian automobile manufacturers, which have, in recent years, been on the increase. For the first six months, there was a decline in production figures of more than a third and a drop in sales of over 40%. The automotive industry (or the transport equipment sector as a whole) accounts for 8.3% of the manufacturing industry and 1.6% of the Indonesian economy.

The corona pandemic has hit manufacturers across the board. To protect employees, there were production cuts right through to temporary factory closures. There were also interruptions in the supply chains. Most of the preliminary products come from Japan, Thailand and China, which all had a strict lockdowns.

In addition, the sales market has collapsed due to the restrictions in public life. According to statistics from the automobile association Gaikindo, just 13,800 cars were sold in May (retail). In the same month of the previous year there were 72,200 units. In production, May 2020 was almost a total failure: the output (cars and commercial vehicles) was only 2,500 units - compared to 103,000 units a year earlier.

Notably however, since the easing of restrictions on industry and public life, sales and production numbers have picked up again. In June, 17,600 units (cars and commercial vehicles) were produced, and sales rose to almost 30,000 units.

No structural change in the course of growth 

What's next? It depends on the course of the COVID-19 pandemic. At the end of July, Indonesia reported the highest daily infection and death rates to date. These official figures are still extremely small compared to the size of the population in international comparison. However, a return to normalcy is not yet in sight. That is why the losses in the industry can no longer be made up within a year. At the beginning of the pandemic, Gaikindo had already forecast a forty percent drop in sales for the full year.

After the pandemic, there will be some catching up on sales. However, due to job insecurity, many consumers are likely to postpone the purchase of a new car into the future or to refrain from doing so altogether. Instead, according to media reports, the revival of the used car market is emerging. 

In the medium term, the state has to pay off the debts raised during the pandemic and can invest less. That should dampen the growth prospects of the automotive industry in the coming years. It mainly consists of Japanese manufacturers and their Indonesian cooperation partners in assembly.

However, there is no threat to the long-term growth path of the industry: The economy is growing, income is increasing, and large inner-city and regional road construction projects, such as the Trans-Java Toll Road, are increasing mobility. At the same time, carmakers have expanded their Indonesian factories and are turning it into an export hub. In the past ten years, the number of export CBUs (Completely Built-Up) has increased six-fold to 332,000 (2019).

Nissan and Chevrolet end production 

A predatory competition has started in the Indonesian market. For example, Chevrolet and Nissan have recently stopped producing locally. Japanese brands dominate more than 95 percent of the passenger car market. Since the start of production in 2017, mid-range cars from the Chinese brand Wuling have been trying to cut a swath in this market with an aggressive pricing policy. A nationwide dealer network was set up in record time.

In the first half of 2020, Wuling was already ninth in the retail sector (passenger cars and commercial vehicles) with a market share of 1.6%, behind eight Japanese brands. The German manufacturers Mercedes, Volkswagen and BMW, which carry out assembly on site, dominate the luxury segment, but together they have a retail market share of less than one percent. 

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.