The Indonesian automotive association, Gaikindo, has dramatically cut its forecast for vehicles sales this year to 700,000 units, from 950,000 earlier in the year, citing new government policies designed to curb excessive borrowing.

Sudirman Maman Rusdi, the association’s chairman, said the government’s plan to introduce a minimum down payment requirement on new car loans will cause many buyers to delay their purchase plans.

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The new regulations, which will require a minimum 30% down-payment on car loans from June, would likely have a significant negative impact on the country’s vehicle market in the second half of 2012.

Currently around 70% of new car purchases in Indonesia are through some kind of financing, with down payments averaging around 10-15%.

The automotive industry still hopes the government will compromise to reduce the impact on the market with the final minimum down payment requirement to be set at 20% and 25%. 

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Many vehicle companies are reluctant to release revised forecasts until the new policies are actually implemented.

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While Gaikindo’s 700,000-unit forecast may have a political element to it, most in industry are apprehensive about the second half of the year. The most optimistic full year forecast reported is 875,000 units compared with last year’s 893,164.

First-half sales are expected to exceed 500,000 units after growing by 249,589 units in the first quarter.

The government delayed reducing long-awaited fuel subsidy cuts in March with a date tentatively set for August for increases in basic fuel prices. 

If both policies are introduced this year, their combined impact on the market in the second half is expected to be severe.