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Lending curbs stall Indonesian car boom

05-Jun-2012 Intellasia | Bangkok Post | 7:01 AM

The prospect of Indonesia’s auto industry becoming the new hotbed for growth in Asia has hit a roadblock after the central bank told lenders to demand bigger down payments.

Currently, a person in Indonesia can buy a car for as little as 5 percent down. Concerned that loan defaults could rise if the current brisk economic growth falters, Bank Indonesia wants to enforce a minimum down payment of 30 percent for bank loans and 25 percent for lease financing.

The new rules have been formalised in a Ministry of Finance regulation and are scheduled to take effect on June 15 unless the automobile industry can persuade authorities to relent.

The Indonesian Automotive Industry Association (Gaikindo) and the National Economic Committee (KEN) have asked for the enforcement of the regulation to be delayed or to be phased in gradually, perhaps starting with a mandatory 10 percent down payment.

Japanese carmaker Toyota's Rush cars line up for loading into a carrier ship ahead of export to Malaysia, at a pier in Tanjung Priuk, Jakarta, May 5, 2009. REUTERS/Crack Palinggi

Industry minister M.S. Hidayat acknowledged the groups’ concerns about the potential negative impact of the tougher financing policy.

Indonesia’s automakers had expected sales this year to top 1 million units, bringing the country closer to Thailand as the leader in Asean. However, Hidayat says that if the central bank rules stick, sales this year would be around 820,000 units, and could fall further to 770,000 next year.

Juwono Andrianto, the general secretary of Gaikindo, forecast sales declines ranging between 10 percent in the bast case and 30 percent in the worst-case scenario.

The industry saw one million units sold as a significant milestone because it would make the global auto industry sit up and take notice of Indonesia.

“When we [Indonesia] reach a million car sales, there will be new rules that will hinder it,” Juwono said gloomily.

Car and pickup sales rose to a record of 894,000 units last year and motorcycle sales were an all-time high of 8 million, according to Gaikindo. Typically, 80 percent of car and motorcycle purchases are financed by loans.

The industry recommends a gradual increase in down payments, which could be made in two or three steps over a defined period of time. It could be 10 percent this year, rising to between 15 percent and 20 percent next year, and reasonable levels of consumer purchasing power could be maintained, say executives.

Purchases of new vehicles across Indonesia are already slowing ahead of the planned enforcement of the regulation. In April, 87,060 cars were sold, down from 87,761 in March, according to statistics from Gaikindo. Motorcycle sales also slipped to 622,929 units in April from 629,689 in March, according to the Indonesian Motorcycle Industry Association (AISI).

The dip in four-wheel vehicle sales followed a good first quarter, during which sales rose 10.8 percent year-on-year to 250,077 units.

Bank Indonesia has also been pressing banks to seek higher down payments from home purchasers. Central bankers acknowledge that consumer credit growth will likely slow down since buyers will now delay vehicle purchases.

Ultimately, it will be up to the banks to decide how aggressively they want to chase car purchasers, through attractive interest rates or service offerings.

Buyers of commercial vehicles, meanwhile, continue to enjoy lower down payments, as it is expected that those using vehicles for commercial purposes are more financially responsible with company money.


Category: Indonesia

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