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July 12, 2008

Indonesia 2008 car sales to top 500,000 units
Indonesian vehicle sales are expected to top 500,000 units this year, despite a government decision to raise subsidised fuel prices in May, Reuters quoted a senior industry association official as saying Friday.

Sales of vehicles and motorcycles are used by analysts and policy makers to help gauge economic activity in Southeast Asia's biggest economy, where a significant portion of gross domestic product is driven by consumer spending.

Indonesia has been competing with Thailand to become the top automotive production centre for the Southeast Asian region, home to around half billion people.

But recently there have been concerns on the outlook for the sector due to soaring oil prices, which pushed the government to lift the price of subsidised fuels by nearly 30 percent in May.

"In 2008, vehicle sales are expected to top 500,000 units. This is the latest revision," Johnny Darmawan, vice chairman of the Indonesian Automotive Industry Association (Gaikindo) said.

"If the fuel prices had not gone up, sales may have been significantly higher than 500,000 units," he added, speaking at the opening of the Indonesia International Motor Show.

Last year, domestic car sales reached 434,449 units, industry data shows, recovering from a slump in 2006 when sales dropped to 318,904 units after the government more than doubled the fuel price in 2005.

The higher sales should help Indonesian automotive related companies such as the largest automotive distributor, PT Astra International Tbk and the number two firm, PT Indomobil Sukses Internasional.

Separately, Trade Minister Mari Pangestu told reporters Indonesia was aiming to overtake Thailand in the race to become the centre for automotive production for the Southeast Asian region, but infrastructure was still a problem.

Both countries host production centres for a number of global carmakers such as Toyota, Honda, BMW, Mercedes-Benz, Nissan, Ford  and Suzuki.

"In the past two years we can see that investments in automotive industry have been very high, so we are catching up in terms of capacity," Pangestu said.

When asked if Indonesia could overtake Thailand in the race, she said, "in the medium term, yes, but of course we need to solve the main problem which is infrastructure, such as ports, transportation network and electricity".

In 2007, Indonesia was behind Thailand and Malaysia in the domestic vehicle sales volume. Thailand's vehicle sales volume reached 631,251 units, while Malaysia sold 487,176 units domestically compared to 434,449 units in Indonesia.

The Indonesian government raised subsidised fuel prices nearly two months ago as rising international oil prices were threatening the country's budget due to ballooning subsidy bill.

The decision lifted the inflation rate to slightly above 11 percent year on year in June, forcing the central bank to lift its benchmark rate, known as BI rate BIPG by 75 basis points in the past three months.

Some analysts had said rising interest rates could put a brake on automotive sales, which grew at a rapid pace in the first half, since most of the sales are financed by loans.

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