Head of Sales, Toyota Astra Motor, Jodjana Jody, revealed that in spite of about 30% rise in prices of fuels in Indonesia, sales of vehicles reached about 49,500 units in May 2008, an increase of 29% over May 2007, as reported by Reuters. According to industry experts, sales of vehicles increased by about 60% from January to April 2008 and it is expected to surpass 500,000 units in 2008 from 434,449 units sold in 2007. Also, new car sales in the country reached nearly 51,639 units in April this year, an increase of about 47% over April 2007, whereas the total sales of cars increased by 56.6% and reached around 187,242 units during January to April 2008.

The low interest rate on automobiles is the main reason behind the rise in sales of the vehicles in Indonesia. In January 2008, Bank Indonesia lowered the benchmark rate of interest to about 8% from 12.75% in 2006. Lower rate of interest encouraged a large number of consumers to purchase new vehicles as most of the automobiles in Indonesia are financed by bank loans.

Moreover, the rising demand for Indonesia’s vehicle technology worldwide, particularly in the US, is leading to growth in exports of the Indonesian automobiles, resulting in strong growth of the country’s auto industry in May 2008. Also, employment growth with rise in disposable income is encouraging many people to purchase new automobiles.

However, increasing prices of fuel and food is leading to inflation in Indonesia, thereby shrinking the total vehicle sales. Moreover, rise in Indonesia’s Central Bank benchmark rate by about 25 basis points is likely to affect the sales of automobiles in the country in near future.

In the past few months, auto sales in Indonesia have been rising, but rapidly growing inflation may play spoilsport for auto manufacturers. Thus, manufacturers should emphasise more on export of vehicles as overseas demand for the country’s vehicles is rising higher than domestic demand.

Related research: China Automobile Sector to 2010