February 9, 2017 2:00 pm JST
FT Confidential Report

Indonesian car demand set to weaken to near 2014 levels

Sluggish economic growth puts brake on consumer spending

New cars are transported by a truck for delivery to dealers in Jakarta. © Reuters

  • Passenger car demand in Indonesia is set to weaken in the first half as consumers grow cautious on spending.
  • Competition will intensify as manufacturers turn more aggressive in launching new products, with Honda, Mitsubishi and Suzuki taking the lead.

The latest survey from FTCR suggests that consumer demand for passenger cars in Indonesia will weaken in the next two quarters, close to levels seen in 2014 when the country was still reeling from the impact of the previous year's so-called taper tantrum on its currency.

While currency weakness is still being felt by Indonesians, FTCR views today's anaemic demand as a result of a prolonged slowdown in economic growth, leaving consumers more cautious on making big-ticket purchases.

FTCR's Auto Purchase Index, which gauges buying intentions for the next six months, fell to 26.4 in the fourth quarter of 2016. That compares with 31.8 in the same quarter a year earlier and 26.8 in the third quarter (see chart).

This trend suggests that sales growth may not pick up pace this year (see chart).

The Association of Indonesian Automotive Manufacturers (Gaikindo) expects the growth rate to remain flat this year. FTCR does not rule out a more bearish outcome of no growth or market shrinkage, depending on three factors:

  • The stability of the rupiah in the face of expected monetary policy tightening in the US;
  • The government's ability to meet infrastructure spending targets amid tight fiscal conditions; and
  • The extent to which commodity prices will continue to recover and boost Indonesia's exports.

New models to drive competition

Competition is likely to intensify as manufacturers step up the frequency of design tweaks and product launches. FTCR expects Honda, Mitsubishi and Suzuki to be among the more aggressive manufacturers launching products this year.

Thanks to a flurry of new products in the past two years, as of December Honda had overtaken Daihatsu as holder of the second-largest market share in the passenger car market (see chart). FTCR expects Honda to continue defying the stagnating car market this year with its line-up of new products.

Honda this week unveiled a redesign of its Mobilio MPV (multipurpose vehicle or van) only a year after its previous design update for the series. The company is expected to update its CR-V sport utility vehicle this year and to launch a new version of its Civic hatchback.

Having completed the construction of a production plant in West Java, Mitsubishi is expected to launch a compact MPV to rival Toyota's Avanza, a SUV model for its Pajero brand and a revamped Mirage city car.

This article was first published on Feb. 3 by FT Confidential Research.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.

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