Based on recent information, the ASEAN Light Vehicle (LV) market is estimated to drop by 6% year-on-year (YoY) to 3.11 million units for full-year 2024, due to double-digit sales declines in Indonesia and Thailand.
According to GAIKINDO, Indonesia’s LV sales fell by 14% YoY to 801k units in 2024, marking the lowest total since 2011, excluding the pandemic-hit 2020. Moreover, volumes declined from July 2023 until December 2024. This downward trend is the result of the financial sector tightening credit approvals, as the default rate has been rising. Additionally, interest rates remain high, although the central bank made a surprise interest rate cut in September. The policy interest rate currently stands at 6%, compared to 3.5% during the COVID-19 era.
A weak rupiah has raised the cost of manufacturing (Indonesia is a net importer of oil), and new vehicle prices have become out of reach for many consumers. Reportedly, an increasing number of customers are choosing to buy used vehicles. VAT increased from 10% in 2023 to 11% in 2024, which not only increased vehicle prices but also the cost of living, eroding purchasing power.
In addition, the pull-ahead demand from the luxury sales tax cut has been another contributing factor in recent years. The Indonesian government implemented lockdown measures in 2020, causing the market to drop sharply by 53% YoY to 495k units during that year. To support the automotive industry, the government announced temporary tax cut policies for two phases: March-December 2021 and January-September 2022. As such, Indonesia’s LV sales surged by 66% YoY in 2021 and by 16% YoY in 2022, but then slowed by 3% YoY in 2023 and by 14% YoY in 2024. Moreover, average annual sales between 2020-23 stood at 801k units, which is the same level as in 2024.
This implies that the negative impact of the pull-ahead effect should fade, and we expect some recovery in the market in 2025, following two consecutive years of decline. However, the recovery is likely to be modest, with volumes increasing by only 5% to 841k units. We are very cautious about the near-term sales outlook for several reasons: a) credit growth has been slowing, and credit conditions will likely remain strict; b) with the US Federal Reserve slowing the pace of its interest rate cuts, the rupiah is depreciating again, making further interest rate reductions by the Indonesian central bank difficult; and c) Trump’s protectionist trade policy could stagnate global trade. For example, higher US tariffs on China will have a knock-on effect on the Indonesian economy, as China is Indonesia’s largest export market.
