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INDONESIA Automotive Industry: Exports Expected to Grow in 2016

Despite optimism about rising car exports in full-year 2016, the latest data from Gaikindo show that Indonesia’s car exports in fact fell 17.9 percent (y/y) to 73,524 CBUs in the January-May 2016 period from 89,544 units in the same period one year earlier. However, this weak performance is mainly due to the delay in exports of the Toyota All New Fortuner and All New Kijang Innova – both manufactured by Toyota Motor Manufacturing Indonesia (TMMIN) – in the first quarter of the year (this delay was related to the release of the new Fortuner and Innova models). However, starting from March 2016 exports of both models have commenced.

The biggest export destination for Indonesian cars is the ASEAN region. However, Indonesia still lags far behind Thailand and Malaysia when it comes to car exports. These neighbors of Indonesia export more than 500,000 vehicles, each, per year. Gaikindo Chairman Sugiarto believes that Indonesia’s car export performance can improve further provided that domestic manufacturers boost the production of the sport utility vehicle (SUV) and the sedan. For both these types there exists big foreign demand. Indonesia, however, mostly produces the multiple-purpose vehicle (MPV). It would also help if the Indonesian government cuts the luxury goods tax on cars, Sugiarto added. This tax makes prices of Indonesian cars expensive.

Currently, Indonesia’s largest car exporters are Toyota Motor Manufacturing Indonesia and Astra Daihatsu Motor.

Indonesia targets to become the largest car manufacturer and exporter in the ASEAN region on the long term, surpassing Thailand (the Indonesian government selected the automotive industry as one of the nation’s priority industries). In that context the Indonesian government prepared a tax allowance and tax holiday in order to attract (foreign) investment, specifically investment in the manufacturing of car components and spare parts. It will require the development of a domestic car component manufacturing industry in order to become the largest regional force in the automotive industry. Although nearly all the globe’s major automotive companies have production facilities in Indonesia, most of these companies continue to import the components from the parent countries.

The Finance and Industry Ministries of Indonesia will also discuss the possibility of cutting the luxury goods tax, specifically for sedan cars, in order to boost the export performance.

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