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EXCLUSIVE ANALYSIS: INDONESIA: Sales downturn accelerates

By just-auto.com editorial team | 13 December 2005

Indonesian vehicle sales fell sharply in October as consumers continued to retrench following successive rises in fuel and energy prices during the year and in response to the government's fiscal tightening policy which began in August.

Sales fell to just over 35,000 units during the month, compared with around 44,000 units in September.

Industry executives have been bracing themselves for further declines in sales volumes the final two months of the year. One unnamed marketing manager with one of the vehicle importers was expecting volumes to decline to around 25,000 units in November and possibly lower in December - levels not seen since earlier on in the recovery phase of the market back in 2003.

While the strong growth in the first eight months of the year will ensure that 2005 ends as the strongest year ever for the country's vehicle market, the industry is becoming increasingly uneasy about the prospects for sales in 2006. This year, vehicle sales will likely amount to 525,000 units - or around 8% more than in 2004.

Overnight interest rates have risen to 12.75% following the latest hike by the Bank of Indonesia on December 6th, from 8% before the tightening cycle began in August, as it struggles to control inflation. Fuel prices more than doubled in October, after an earlier increase in March, and other energy costs have also risen sharply. Annual inflation was 18.4% in November - the highest it has been since the aftermath of the Asia crisis in the late 1990s.

As well a sharp decline in deliveries to dealers, the industry has been coming to terms with a steady build-up of inventories - although inevitably some companies have been affected more than others. Nissan Motor, for example, has seen its monthly sales decline to a third of the sales volumes earlier in the year and the company has been forced to drop a shift at its local assembly plant - which makes the Xtrail and Serena models.

Sales of many of the European brands have dropped to a trickle, while sales by Ford and GM have halved compared with volumes earlier in the year. The Japanese have held up better, particularly Toyota, Daihatsu and Suzuki, but mostly because of strong sales at the cheaper end of the market.

Indonesian vehicle sales by brand, Jan-Oct 2004-05
2004 vs 2005
Toyota 115,044, 154,883
Mitsubishi 75,684, 82,443
Suzuki 66,961, 79,521
Honda 39,317, 50,052
Daihatsu 39,082, 43,269
Isuzu 19,756, 23,338
Nissan 10,415, 7,590
Kia 4,954, 7,244
Hyundai 6,816, 5,953
Hino 5,134, 5,649
Ford 5,196, 4,968
Others 11,017, 10,394
Total market 399,376 475,304
Sources: industry sources.

The outlook for 2006 remains clouded, but there is significant potential for a sharp downturn at least in the first half of the year. The government is preparing to boost spending from the first quarter of the year to help offset weaker private spending and a slow down in consumer sector.

The government, arguably rather optimistically, still expects next year's GDP growth to be in excess of 5%, though lower than this year's 6.2% forecast. With interest rates and inflation expected to fall as the year progresses, most of the growth is forecast to come in the second half of the year. But the short-term outlook remains a worry for the car industry.

DaimlerChrysler's local subsidiary, PT DaimlerChrysler Indonesia, now expects sales of premium cars - often a segment not so dependent on economic cycles - to decline by 20% next year. An imminent increase in luxury car taxation will not help either. The company's own sales will be supported by an aggressive new product campaign which will include making available the new B-class, R-class, G-class and C-class models. It expects its own sales to decline by 10% to 1,800 units next year, from an anticipated 2,000 in 2006.

Tony Pugliese