The Indonesian vehicle market in May continued its strong recovery from the sharp decline in 2006. Sales jumped 66% year-on-year to 38,313 units compared with 23,079 in May 2006, according to data released by PT Toyota Astra Motor - the major local vehicle distributor which also compiles sales statistics.

Cumulative sales for the first five months of 2006 amounted to 158,189 units - 26.5% higher than last year's 125,068 units. This latest market count is further evidence that the country's economy has managed to weather the intense monetary tightening that began in the second half of 2005, intended to counter spiralling inflation caused by the government fuel price hikes.

The industry is increasingly optimistic about the full-year outlook, with sales now widely expected to reach 380-390,000 units in 2007, compared with last year's 317,000 units.

Since interest rates reached a peak of 12.75% in May 2006, the Bank of Indonesia has reversed its tightening policy and, since July, has continually reduced rates - the latest cut having brought down the overnight lending rate to 8.5%. This has helped alleviate the significant spending power erosion that took place throughout most of 2006, when wages struggled to keep up with the rising cost of living. Consumers who have held back on car-buying because of the high rates can now also enjoy much better borrowing costs.

The automotive industry has also played a big role in the market's recovery, with a large number of new model launches helping to inspire buyers. The introduction of Euro II emissions control standards at the beginning of this year has also triggered significant product renewal - particularly in the commercial vehicle sector.

The new Daihatsu Terios and the Toyota Rush derivative are the most important new passenger vehicles launched in the last six months, with combined monthly sales averaging around 2,200 units since December 2006. A wide range of new models have followed since, including the new Honda CR-V in February, the Suzuki SX4, Daihatsu Sirion, Toyota Vios and the Nissan Grand Livina - all high volume models for this market.

The Indonesian market is now much more cost-conscious than it has been in the past, despite falling interest rates. Fuel prices are now up to four times higher they were just six years ago and significant downsizing has taken place in the market as a result. There is a much better range and standard of small and compact passenger vehicles in the market than just five years ago.

Today, the Honda Jazz [Fit], Toyota Yaris [Vitz] and Suzuki Swift sub-compact cars sell in high volumes. Even the 1.3L Toyota Avanza, derived from the Daihatsu Xenia compact utility vehicle model, now outsells by a wide margin the famous Toyota Kijang, which for three decades was Indonesia's best-selling passenger vehicle.

Tony Pugliese