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Competition in Indonesia’s automotive sector revs up

South East Asia’s automotive sector has recorded impressive growth over the last decade. With 1.2 million vehicles sold in 2013, Indonesia is spearheading this phenomenal growth story. Recognizing the growth potential, the South East Asia Automotive Summit 2015 gathered industry leaders and government officials to discuss key industry trends, opportunities and threats.

Jeffrey Bahar, Deputy Chief Executive Officer of the Spire Research and Consulting group, was honoured to be invited as a guest speaker at the South East Asia Automotive Summit 2015. In his presentation, Bahar spoke about Indonesia’s rapidly advancing automobile industry giving centre-stage to the Low Cost Green Car/ Low Emission Car (LCGC/LEC) segment.

Bahar noted that the Indonesian automobile market story was very different in 2014. It was plagued by slow annual growth (around 5%), the falling Indonesian Rupiah, political uncertainty and post-election disputes. Inflation, luxury taxes, pull-backs in subsidized fuel and subsequent tariffs hikes further stunted demand.

However, an expanding middle-class population of 100 million, rising consumer confidence, low interest rates for car credit (5-6%) and an expected growth of 5-7% (year-on-year) in the Gross Domestic Product (GDP) in the next five years will be primary growth drivers for Indonesia’s auto segment.

Interestingly, within 18 months of a new initiative launched in 2014 introducing Low Cost Green Car/Low Emission Cars (LCGC/LEC), domestic sales for LCGC reached 223,000 units. The cars were lauded for fuel efficiency and lower prices. Manufacturers hope that this segment will take off among price-sensitive consumers.

Nonetheless, challenges remain. Manufacturers need to ensure low-cost production without sacrificing quality. Moreover, intense competition from established players might muscle out new entrants. Established players – with Toyota Agya on top – could continue to dominate domestic sales.

Bahar’s presentation deck on “Indonesia Automotive Insight: The New Era of LCGC/LEC” can be found here.

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