Indonesia’s automotive industry suffered substantial disruption as a result of the widespread flooding in the Jakarta area in February.

The country’s vehicle assembly plants, which are mostly located east of Jakarta, were forced to halt production for between one and two weeks this month as flood waters brought day-to-day life to a halt.

Eastern Jakarta and surrounding towns were the worst hit by the floods, which at their peak are estimated to have submerged around 70% of the Indonesian capital city, leaving thousands homeless. With life slowly getting back to normal as the floodwaters recede, Jakarta is left counting the economic damage – to people’s livelihoods, property and the city’s infrastructure.

The Bank of Indonesia responded immediately to the crisis with a 50 basis point cut in the overnight lending rates to 9.25% to help soften the blow despite the inevitable jump in short-term inflation.

The country’s automotive industry hopes to have escaped with only temporary disruption to normal business, however. Joko Trisanyoto, marketing director of PT Toyota Astra Motor – the Toyota distributor, confirmed that none of the group’s facilities has been flooded and that its dealer network also largely escaped the floods.

After some overstocking at the year-end, a preliminary assessment of the vehicle market points to a 15-20% decline in deliveries to dealers in January, compared with the previous month, to around 28,000 units. “I expect retail sales in January to have been higher than deliveries as high stock levels were run down,” says Mr Trisanyoto, adding that “a further sharp decline in February will be inevitable as many assembly plants were cut off from their component suppliers and from dealers for more than a week”.

However, a rebound is likely from next month, as most dealers outside the Jakarta area have not been affected and are likely to be carrying low stock. “Production will be stepped up in March and April to reduce the current backlog,” says My Trisanyoto, “so a rebound in deliveries will likely take place in the short term”.

Mr Trisanyoto still expects the vehicle market overall to increase by 20% this year, compared with around 318,000 units in 2006, and that the overall effect of the floods will not be significant. “Lower interest rates will help improve consumer purchasing power through lower borrowing costs, while higher government spending will also help domestic consumption growth”.

“For the car market, new models such as the Rush and Terios will help lift the market. The Toyota group is planning to make an average of 1,000 units of each per month this year,” says Mr Trisanyoto. Demand is also expected to be strong for Nissan’s new Livina MPV, which is due to be launched in March or April”.
Mr Trisanyoto does not expect a significant jump in vehicle replacements due to flood damage, but admits his company hasn’t fully assessed how many cars have been badly affected. “Many owners will need to sell their existing cars first, before they can afford to buy a new car. Resale values are likely to be very depressed at the moment, so most owners will likely wait at least a year before replacing their cars”.

Tony Pugliese