Strong Push to Boost New Car Sales in Indonesia

Jakarta, INTI - The Ministry of Industry continues to drive the performance of the automotive sector in Indonesia, including increasing the domestic market and car sales. The automotive industry is one of the sectors prioritized for development due to its significant contribution to the national economy.

"The transport equipment industry was the main driver of industrial GDP growth in 2023 with a growth of 7.63 percent, higher than the overall industrial sector growth. This growth is attributable to the automotive sector," said Acting Director General of Metal, Machinery, Transportation Equipment, and Electronics Industries (ILMATE), Putu Juli Ardika, in Jakarta, Wednesday (10/7).

However, in the past 10 years, car sales in the domestic market have remained around 1 million units. "Strategic steps are needed to increase these sales," Putu added.

Trends in Vehicle Sales and Exports

The Ministry of Industry recorded that in 2023, sales of two-wheeled vehicles in the domestic market reached 6.2 million units, with exports reaching 570 thousand units. Meanwhile, car exports amounted to 506 thousand units for CBU types and 65 thousand units for CKD types.

"Although domestic sales have stagnated, production continues to increase to meet export market demands. This means our automotive industry still has a competitive edge," said Putu. The trend of increasing car exports is evident, rising from 194 thousand units in 2016 to 506 thousand units in 2023.

"In the last five years, new automotive industries such as Hyundai, Chery, Neta, Citroen, and MG have entered," he added. Several global automotive manufacturers are targeting Indonesia as a production base, including making it an export hub.

Factors Behind the Decline in Domestic Sales

According to a study by LPEM UI, the stagnation in car sales in Indonesia is influenced by the decline in people's purchasing power, leading them to buy used cars instead of new ones. "A program is needed to stimulate new car purchases while maintaining Indonesia's commitment to reducing carbon emissions," Putu explained.

Putu noted that domestic car sales and production peaked in 2013, driven by rising per capita income and the Energy Efficient and Affordable Price Four-Wheel Motor Vehicle Program (KBH2).

In 2021-2022, there was a surge in sales influenced by the implementation of the Government-Borne Luxury Goods Sales Tax (PPnBM DTP) program. This program increased sales volume in 2021 to 887 thousand units, compared to 532 thousand units in 2020. Sales volume in 2022 even reached 1.048 million units, higher than pre-pandemic sales in 2019 of 1.03 million units.

Strategic Steps to Increase New Car Sales

Putu suggested that to increase new car sales, fiscal incentives could be provided for domestically produced vehicles. These incentives should be given to vehicles with specific local content requirements and prioritize low-emission vehicles.

Additionally, support related to controlling interest rates can also be a measure to encourage people to buy new four-wheeled vehicles. "Regarding the decline in people's purchasing power, easing interest rates for new car purchases on credit could be an option to restore interest in buying new cars," he added.

To reduce environmental impact and improve vehicle usage safety, the government can implement specific regulations on the age limit of cars in certain areas. "With these measures, it is expected that there will be stimulation to increase new car sales in Indonesia," Putu emphasized.

Challenges and Opportunities in the Automotive Sector

Secretary-General of the Indonesian Automotive Industry Association (Gaikindo), Kukuh Kumara, stated that as of May 2024, car sales had decreased by 21 percent to 334 thousand units. This was triggered by various factors, including rising global interest rates, an increase in non-performing loans (NPL), and tighter credit from finance companies. Gaikindo might revise its 2024 car sales target of 1.1 million units.

"One factor causing the stagnation in the car market is that new car prices are unaffordable compared to household incomes. The gap between household income and new car prices is widening," he said.

Kukuh stressed that the national economic growth must be increased to 6-7 percent per year to break out of the 1 million unit domestic car market trap. With this, per capita income can rise by 5-6 percent annually, pushing the upper middle group into the affluent income group, thus driving automotive sales out of the 1 million unit trap.

Short and Long-Term Solutions

Automotive observer from LPEM UI, Riyanto, proposed two solutions to escape the 1 million unit car market trap. In the long term, national economic growth needs to be increased to 6 percent per year through reindustrialization, so the manufacturing sector's contribution to GDP can reach 25-30 percent or more. This will boost per capita income, pushing the upper middle class into the affluent category.

In the short term, the government needs to release fiscal stimuli to help the upper middle class, who are nearly affluent, buy new cars. These could include PPnBM discounts for LCGC and low MPV 4x2 vehicles. "At the same time, a cheap car program or refreshing the KBH2 (LCGC) program should be designed," he said.

PPnBM discounts will boost car sales because prices will drop, increasing car and spare parts production. This will lead to higher VAT, vehicle tax (PKB), and transfer of vehicle ownership fees (BBNKB). Corporate and personal income taxes will also increase.

Furthermore, increased car sales will boost the national economy by adding to GDP, employment, and investment. This will also result in higher corporate and personal income taxes.

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