Indonesian new vehicle sales decline by 4.6% y/y in November, production up by 4.5% y/y
New vehicle sales in Indonesia declined 4.6% year on year (y/y) to 96,191 units during November, while vehicle production was up 4.5% y/y to 112,750 units.
IHS Markit perspective
- Implications: The decline in Indonesia's vehicle sales during the month was largely due to a high base of comparison.
- Outlook: IHS Markit expects new vehicle sales in Indonesia in 2017 will be propelled by non-taxable income level adjustment that will benefit the lower- to middle-income segment, strong demand for affordable vehicles, and new model launches. We forecast Indonesian light-vehicle sales to increase by 3.7% y/y to about 1.05 million units in 2017, with production forecast to grow 1.1% y/y to 1.14 million units.
Wholesale new vehicle sales in Indonesia - including passenger vehicles and light, medium, and heavy commercial vehicles (MHCVs) - declined 4.6% year on year (y/y) to 96,191 units during November, according to data from the Association of Indonesian Automotive Industries (GAIKINDO). Sales of light vehicles, including passenger vehicles and light commercial vehicles (LCVs), declined 8.2% y/y to 86,317 units in November and accounted for 89.7% of the monthly total. Sales of MHCVs surged 45.2% y/y to 9,874 units, accounting for the remaining 10.3%. By brand, Toyota's sales plunged 28.9% y/y to 28,797 units during the month, giving it a market share of 29.9%. Daihatsu came second with 16,360 units (down 18.6% y/y), followed by Honda with 15,811 units (down 4.2% y/y), Suzuki with 11,007 units (up 28.5% y/y), and Mitsubishi with 10,610 units (up 119.8% y/y). Meanwhile, imports of completely built-up (CBU) units surged 54.5% y/y to 7,558 units.
For the year to date (YTD), total vehicle sales in Indonesia grew by 1.9% y/y to 994,436 units, with light-vehicle sales marginally down 0.3% y/y at 909,612 units and MHCV sales up 32.9% y/y at 84,824 units. Imports of CBU units during the YTD are up 15.3% y/y at 84,411 units.
Indonesia's vehicle production grew by 4.5% y/y to 112,750 units during November. Output of light vehicles went up by 1.4% y/y to 103,444 units, and MHCV production surged 58.3% y/y to 9,306 units. Automakers' exports of CBU vehicles increased 20.2% y/y to 22,262 units, while exports of completely knocked down (CKD) kits declined 59.7% y/y to 7,158 units. During January-November 2017, total vehicle production in the country grew by 3.8% y/y to 1.13 million units. Light-vehicle production in this period increased 2.3% y/y to 1.05 million units and MHCV output grew by 27.1% y/y to 81,668 units. Exports of CBU units jumped 20.5% y/y to 214,971 units during the period, while exports of CKD kits plunged 57.6% y/y to 78,119 units.
Outlook and implications
Indonesia is the largest light-vehicle market in the Association of Southeast Asian Nations (ASEAN) region. It is expected to account for 32.7% of total light-vehicle sales in the region in 2017, according to IHS Markit's light-vehicle sales forecast data.
The decline in new vehicle sales in Indonesia during November may be attributed to a high base of comparison. IHS Markit expects Indonesian light-vehicle retail sales to grow by 3.7% y/y to 1.05 million units in 2017, propelled by a non-taxable income level adjustment that will benefit the lower- to middle-income segment. Popular products ranging from affordable low-cost green cars (LCGCs) to multipurpose vehicles (MPVs), and new model launches are also expected to spur new demand this year, according to IHS Markit's Indonesian light-vehicle sales forecasting analyst Mayuree Chaiyuthanaporn (see Indonesia: 24 November 2017: Daihatsu launches redesigned Terios SUV in Indonesia). Furthermore, Indonesia's central bank has reduced its benchmark interest rate by 25 basis points to 4.25% in September for the second time this year to spur consumer spending.
Under the government's LCGC incentive scheme, eligible locally produced models benefit from significant reductions in the 125% luxury sales tax on vehicles in the country. LCGCs are priced at about IDR100 million (USD7,375), have an engine size of less than 1.2 litres, a fuel economy of at least 20 km/litre, and must be assembled locally with at least 80% local content. Sales of LCGCs during the YTD grew by 2.8% y/y to 218,358 units, accounting for around 22.2% of vehicles sold in the country, according to GAIKINDO data.
MPVs will remain the best-selling body type this year, with sales likely to rise 10.5% y/y to 505,907 units, giving a market share of 48.2%. The segment will be led by the Toyota Avanza, although its sales are expected to decline by around 9.8% y/y to 118,911 units, largely on the back of growing competition in the segment.
In a bid to spur demand for sedans in the country and promote Indonesia as a manufacturing hub for sedans, the government plans to reduce sales tax on locally produced sedans. The plan has been included in a revision to the country's value-added tax and luxury-goods sales tax law, which the government will propose to parliament soon. Currently, sedans are included in the luxury goods category and are subject to higher taxes of about 30-40%, versus 10-20% on MPVs. The higher tax makes sedans less attractive to automakers and car buyers. During the YTD, sedans accounted for just 0.9% (8,776 units) of the total vehicles sold in the country, according to GAIKINDO data. The association has proposed that the sales tax on smaller sedans be reduced to 10% to match MPVs.
Indonesia is ASEAN's second-largest light-vehicle production base, after Thailand. It is likely to account for 29.1% of light-vehicle production in the region in 2017, according to our light-vehicle production forecast data. The growth in production during November came on the back of improvement in exports and domestic MHCV sales. The government has raised its infrastructure budget to IDR387 trillion in 2017, up from IDR347 trillion in 2016. CV manufacturers are bringing out new trucks and investing in their local plants to tap into this growing opportunity. Recently, Mercedes-Benz has started assembly of Axor trucks at its Wanaherang plant. In addition, Hyundai has signed a deal with Hyundai Oto Komersial Indonesia to supply 500 Xcient heavy-duty trucks. The automaker plans to start shipping the trucks from its plant in South Korea from December and complete deliveries by June 2018.
The government also plans to introduce a tax exemption for low-carbon-emission vehicles by the end of 2017. The new tax structure will be arranged under the low-carbon-emission vehicle (LCEV) programme. Under this programme, a passenger vehicle must offer a minimum fuel economy of 28 km/litre. The draft LCEV regulation has been submitted to the Indonesian Ministry of Finance to ascertain the degree of incentives to be given to alternative-powertrain vehicles, including electric vehicles (EVs), hybrids, plug-in hybrid electric vehicles (PHEVs), fuel-cell electric vehicles (FCEVs), and next-generation "clean diesel" cars. It aims to promote LCEVs in stages, starting with hybrids before moving on to EVs. The government's plan to implement a tax exemption for LCEVs is aimed at encouraging the production of alternative-powertrain vehicles in the country. It aims to produce 400,000 alternative-powertrain vehicles in 2025, according to Indonesian Industry Minister Airlangga Hartarto. Indonesia will also work with South Korea in producing lithium-ion batteries for electric cars.
Meanwhile, the emergence of Indonesia as a production hub relates to the fact that its plants' capacity utilisation rates are far lower than those of affiliated plants in Thailand, according to Jessada Thongpak, IHS Markit senior analyst for ASEAN light-vehicle forecasting. In Indonesia, original equipment manufacturing (OEM) bases tend to have less than 60% capacity utilisation, compared with Thailand's average of more than 65%. Therefore, the shift to Indonesia will continue, with low-cost skilled labour offering a further advantage.
IHS Markit forecasts that Indonesian light-vehicle production will grow by 1.1% y/y to 1.14 million units in 2017. We maintain a conservative outlook for subsequent years and expect the country's light-vehicle production to reach 1.45 million units in 2020.
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