Low-cost eco cars leading sales in Indonesia

New car sales are rebounding in Indonesia, logging a 2.4% gain in the first nine months of 2016 from a year earlier to around 780,000 units.

The recovery of auto sales has been led by demand for inexpensive low-emission vehicles stimulated by tax incentives for them. Sales of other models remain sluggish.

Auto sales have yet to make a full-scale recovery as wealthy people are holding back on purchases of high-priced goods as a result of the government’s new tax amnesty program.

Leading the way

Salespeople at an auto dealership in a shopping mall on the outskirts of Jakarta were idly chatting on an early November day. One of them said visitors are interested in new cars, but they rarely make a purchase.

At another dealership, there were no customers despite signs advertising low-interest auto loans with no down payment.

Amid a marginal economic recovery since last year, auto sales have seen moderate year-on-year increases since April thanks to strong demand for one segment of vehicle: low-cost green cars, or LCGC.

The Indonesian government exempts or cuts taxes for vehicles that clear fuel efficiency and other environmental standards. As a result, LCGCs priced around $9,000 have become available.

These vehicles accounted for 20% of all new cars sold in the January to September period, up from 16% in all of 2015.

Toyota Motor and Daihatsu Motor have been capitalizing on the trend. Both Japanese makers released seven-seater minivan LCGCs in August against the backdrop of the popularity of such multipurpose vehicles.

The Daihatsu Sigra is priced from around 106 million rupiah ($8,068) in the Jakarta metropolitan area, causing a shift in demand from two-wheeled vehicles.

The proportion of LCGC sales rose to 28% in September. Sales of other models shrank, an executive at a major dealer said, noting a slowdown in purchases by the affluent.

Resource diversion

Many economists point out that the wealthy are spending more on tax payments than consumption because of a tax amnesty introduced by the government in July.

The program exempts holders of undeclared assets at home and abroad from high back taxes and criminal prosecution if they declare them by March 2017 and pay 2-5% taxes for their assets. Many chief executives of major conglomerates and other wealthy people have been filing for payments under the system.

As of the end of September, the program has netted 97 trillion rupiah. Spending by the wealthy on motor vehicles, real estate and other assets has slowed, according to economists.

New car sales in Indonesia peaked at 1.23 million units in 2013 and dropped to 1.01 million in 2015. An auto industry association targets sales at 1.05 million to 1.10 million for 2016.

Although the target is expected to be cleared, it remains uncertain whether the auto market in Indonesia, Southeast Asia’s biggest, will fully recover as large wage hikes appear unlikely in 2017.

Via Nk

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