Following the news that Indonesia Automotive Industry Association (GAIKINDO) reported month-on-month increase in vehicle sales in June 2020;

Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading research and consulting company, offers his view:

“Indonesia has not yet flattened the COVID-19 curve as the number of positive cases remains high in the country. Presently, Indonesia leads Southeast Asia in the most number of COVID-19 cases with the country continuing to practise large-scale social distancing measures across many of its regions. Consequently, these measures have kept the customers away from the market, impacting the new vehicles’ sales. GlobalData expects Indonesia’s new vehicle demand to remain subdued in 2020 compared to pre-COVID levels; however, a month-on-month upsurge is expected.

“Indonesia auto industry continues to face both supply and demand challenges. Some vehicle and component manufacturing units are still temporarily shut due to COVID-19 and also, there is limited demand for new vehicles both in the domestic and the overseas market. However, compared to April and May 2020, the situation improved in June with the re-opening of production units and demand for new vehicles. Vehicle production was up from mere 2,510 units in May to 17,616 units in June 2020. Additionally, retail sales increased by 74.8%, reaching 29,862 units in June 2020 from 17,083 units in May 2020.

“The month-on-month upward trend is a major positive for the industry as it marks the start of recovery. However, reaching pre-COVID levels will remain a major challenge for the Industry given the hampered consumer sentiments and the supply chain disruptions. The January-June 2020 retail sales are still 42.1% lower than the same period of the previous year. On an average, the country’s monthly vehicle retail sales were over 80,000 units in 2019, which is unlikely to be achieved in a single month this year.

“Weak consumer sentiments, which are directly linked to the economy and COVID-19, are expected to act as a major factor restraining the big-ticket purchases in Indonesia. Weak purchasing power will push customers towards used vehicles or the two-wheelers. Also, weakening of financial market indicates tightening of credit rules for customers opting for auto loans. However, the government’s announcement of subsidy on car loans in early May 2020 might keep new vehicle financing afloat – which is opted by over 70% of new car buyers in Indonesia.

“The government’s push to boost purchasing power coupled with automaker’s strategic launch of new products and better customer outreach strategies such as digital sales could help he industry to recover at a faster pace.”