Indonesia Autos Report Q2 2010

Indonesia's autos sector outperformed industry projections to register car sales of 486,061 units in 2009.

Despite the 20% year-on-year (y-o-y) decline, the results were better than expected, easily exceeding the initial projections of the Indonesian Automotive Industry Association (Gaikindo) for sales of 400,000 units. Indeed, data show consistent month-on-month growth between April and August, while sales for October were up 40% compared with September. While both Gaikindo and We expect the market to return to positive growth in 2010, there are risks to the rate at which it will recover. Chief among these is the new law on regional vehicle taxes passed in August 2009, which requires drivers to pay additional taxes for owning more than one vehicle.

Despite the new taxes, we expect sales growth of at least 5% in 2010. This should also support a boost in production, which fell 22% in 2009. We expect output to return to average annual growth of 10% over the 2010-14 period, buoyed by projects such as Volkswagen (VW)'s planned production base. In July 2009, Indonesia's Investment Coordinating Board (ICB) revealed that VW will invest US$140mn (IDR1.4trn) in its first production plant in the country. The two-year project will see the company build a base for its Touran multi-purpose vehicle (MPV), which will have an annual production capacity of 50,000 units.

Indonesia, in eighth place in our Business Environment Ratings for the autos sector in Asia Pacific on 53.9 from a possible 100, is the region's largest passenger car market and as such, will always have an appeal for investors. Low labour costs, and a competitive environment with room for new players, increase Indonesia's attractiveness, as do its recently upgraded regulations on intellectual property rights (IPRs), which boost its regulatory environment rating. The country's risks to realisation to returns act as a hindrance however, with low scores for corruption, bureaucracy and the legal framework. The country structure score has fallen from 47.5 to 36.3 taking its score for limits to potential returns down from 53.5 to 49.5.

The market is still dominated by Astra International, which represents Toyota Motor, Isuzu Motors, Daihatsu Motor and Nissan Diesel. The company recorded sales of 281,013 units and although this was down 3% from 2008, the smaller overall market meant Astra's market share rose from 52% in 2008 to 58% last year. Moreover, Toyota Astra Motor is confident that Toyota sales will not be affected by its parent company's vehicle recalls, as the models sold in Indonesia are produced in Thailand and do not carry the fault that has prompted the recalls.