JAKARTA: Indonesian carmakers saw sales plummet in the first half of the year, as households tightened their belts amid higher interest rates and weakening purchasing power, prompting producers to revise their targets.

Many middle-income earners are opting to delay buying new cars to prioritise other needs, while some consider purchasing used cars.

“I don’t think I will buy a car anytime soon,” said Angelina, a 26-year-old entrepreneur from Bandung, West Java, to The Jakarta Post on Tuesday. “What I’m looking for and what’s on the market still don’t really match.”

Angelina was looking to buy her first car, preferably an SUV with either an internal combustion engine (ICE) or a hybrid. She set her budget at 200 million rupiah, but most new SUVs are priced above that figure, leading her to consider used vehicles.

For now, buying a car is not her immediate priority, she noted, citing a need to focus on expanding her business while her motorcycle can still meet her day-to-day commuting needs.

Alvin, a 24-year-old entrepreneur from Central Jakarta, was also considering buying a car in the 200-million-rupiah range.

For now, Alvin saw used ICE cars as appealing because of their lower price compared with new cars.

Alternatively, he also considered buying an electric vehicle, which could benefit from tax incentives and exemption from the odd-even number-plate zoning policy that is aimed at reducing traffic. Moreover, purchasing a car would only be possible with a loan, but this means paying more with interest, he said.

During the first half of 2024, wholesale or factory-to-dealer sales, were down 19.5% year-on-year (y-o-y) at 408,012 units from 506,427 units in the same period last year according to data from the Indonesian Automotive Manufacturers Association (Gaikindo).

Meanwhile, retail sales, or direct purchases by consumers, dipped 14% y-o-y to 431,987 units over the same period from last year’s 502,533.

The decline in car sales has prompted the association to reassess its ambitious target of selling 1.1 million cars this year, which marks a 10% increase from one million cars sold last year.

“Revising our target is necessary since by June, we have only sold slightly over 400,000 units,” said Yohannes Nangoi last Thursday at the opening of the annual automotive exhibition 2024 Gaikindo Indonesia International Auto Show (GIIAS).

He has yet to reveal the revised figure but said he would do so before the end of the GIIAS event on July 28.

Yohannes cited macroeconomic woes, rising central bank interest rates and a weakening rupiah against the US dollar as key factors behind weaker sales this year. The rupiah exchange rate hit a fresh multi-year low at around 16,500 rupiah per US dollar in June, before strengthening to around 16,200 rupiah against the greenback on Tuesday.

Tauhid Ahmad, senior economist of the Jakarta-based Institute for Development of Economics and Finance, said on Tuesday that high interest rates had partly strained household budgets and weakened purchasing power.

Meanwhile, car prices continue to rise this year as producers grapple with higher input costs.

Even though Indonesia has relatively low inflation compared with other countries, at 2.51% in June, he pointed out that household consumption grew only 4.91% y-o-y in the first quarter, implying much weaker growth than the 5% mark.

Industry Minister Agus Gumiwang on July 18 urged carmakers to refrain from raising prices, citing concerns that this could hinder industry growth amid weak purchasing power.

The government was considering relaxing the luxury-goods tax to boost car sales as well as pushing vehicle ownership via an affordable-car programme for low-cost “green” cars.

Tauhid cautioned that slashing taxes can only do so much. “As long as interest rates remain high, loan instalments will remain high and burdensome for middle-income households.”

 - ANN