Vehicle sales for the first six months of 2009 underwent a decline of 28% y-o-y, to 210,000 units. Against this backdrop, Gakindo revised its own forecast in late July, in a positive direction. On the back of the H109 data, the institution now expects that new vehicle sales will register 450,000 units in 2009 (a fall of 25% y-o-y), compared to its earlier forecast of a 30-35% y-o-y fall. However, we see no reason to revise our own forecast for a 30% y-o-y decline across 2009 to a less pessimistic scenario. Sales were worse yo- y in Q209 than they were in Q109, and the H109 performance as a whole is largely in line with our view for the year as a whole. Indeed, the 210,000 units sold in H109 compares coherently with the 425,000 units that we forecast for the year as a whole.

Our outlook beyond 2009 remains reasonably upbeat. Over the period 2010-2013, we expect new vehicle sales in volume terms to be running at a growth rate varying between 9.6% and 14.4% per annum.

In 2008, production of CBUs in Indonesia surged by over 40% y-o-y, to a total of 600,844 units, largely mirroring the trajectory for domestic sales of new vehicles. Vehicle production in Indonesia during 2009 should again broadly mirror new vehicle sales, given that approximately 90% of CBU production in the country is oriented toward the domestic market. As such, we predict that vehicle production in Indonesia will undergo a decline of 30% y-o-y in 2009, before bouncing back to growth of around 10% per annum across the period 2010-2013.

There are upside risks and downside risks to our forecasts. For the remainder of 2009, the balance of risks to our -30% y-o-y forecast for sales and production is tilted slightly to the upside, given a low base provided by H208 and recent reductions in the cost of borrowing. Nonetheless, there remains the risk of a longer-than-expected global economic downturn – perhaps involving a double dip recession for major Western economies – which would stifle Indonesia’s own economy and negate our current expectation that car sales/production in the archipelago will return to a moderately strong trajectory (average of 10%+ per annum) from 2010.