High bank rate may hit car sales

Mustaqim Adamrah ,  The Jakarta Post ,  Jakarta   |  Thu, 10/09/2008 10:37 AM  |  Business

The recent rise in the central bank's key interest rate in response to the global financial crisis may hit the country's automotive industry, local players say.

With Bank Indonesia (BI) having raised its benchmark rate to 9.5 percent, car sales are likely to slow down in the coming months and into next year, said Freddy Soetrisno, Indonesian Automotive Industry Association (Gaikindo) secretary-general.

Freddy said Wednesday the automotive industry would slightly undershoot its full-year sales target of 580,000 units if the BI rate stays at the new level.

"But, the serious problem will really come next year," he said.

"Hopefully, the authorities understand this and will do something to help the industry. Otherwise, the automotive industry will definitely decline next year."

Sharing similar views, Amelia Tjandra, marketing manager of Gaikindo member PT Astra Daihatsu Motor, said the industry would start feeling the pinch from the global turmoil next year.

She said however that the domestic automotive market was thought to be relatively "safe" this year as car manufacturers had mostly provided supplies to auto dealers on time.

She said higher interest rates would severely affect the industry as around 70 percent of transactions are normally financed by bank loans.

"National automotive businesses are more worried over BI's decision (than other sectors), which will drain liquidity out of the banking sector," said Amelia.

She predicted the recent BI decision could push up lending interest rates to clients to 20 percent, as compared to around 18 percent currently.

The target of 580,000 units represented a significant increase on last year's 434,449 units. In 2006, the figure stood at 318,901 units.

In September this year, car sales slid 6 percent from 58,489 units in August to 55,000 units. The decline, according to Amelia, was the result of there being fewer working days during the Islamic fasting month.

Marketing and sales general manager of Gaikindo member PT Toyota Astra Motor, Djojana Jody, echoed Amelia.

"Car sales declined in September," he said.

"However, we can see demand is still high, provided that sales stay above 50,000 units per month. We should now think of how to maintain this high demand," he added.

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