The Indonesian government has announced some key policy changes that are expected to have a detrimental effect on the domestic new vehicle market in the short term.
The government said it expects to increase the price of the widely-used Premium petrol, sold nationwide by state-owned oil and gas company Pertamina, by 33% to IDR6,000 (US$0.65) a litre from the beginning of April.
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The long awaited move is designed to reduce the cost of fuel subsidies – IDR165 trillion ($18.5bn) in 2011. The government is under pressure to spend this budget on other projects such as infrastructure development and education.
The Bank of Indonesia announced last week that it will require lenders to increase the minimum deposit to 30% on private car loans and to 25% for company cars. For commercial vehicles, the minimum down payment will be 20%.
The new minimum deposit requirements are expected to come into effect from June 2012 and are designed to prevent “bubbles” developing in key sectors of the economy. Housing loans will also subject to higher minimum down payments.
Nomura Indonesia expects sales of motorcycles and cars to fall by 10%-25% this year as a result of the combined effect of higher fuel prices and tighter lending criteria.
The automotive industry is discussing with the finance ministry ways to reduce the impact of the new policies on sales. Among options being discussed are cashbacks to help reduce the initial purchase cost.
Vehicle manufacturers, however, expect the market to be more resilient this time round compared with the last time fuel prices were hiked in 2005. That year, the price of Premium more than doubled, to IDR 4,500, and vehicles sales fell by 40% the following year.
The combined effect of tighter lending and higher fuel prices will inevitably have an effect on the affordability of vehicles in Indonesia. Full-year growth forecasts are being revised downwards but the industry currently still expects 2012 sales to be flat at worst.
