Business

Astra to boost used car
sales to avoid market decline

Car financing firm PT Astra Sedaya Finance (ASF) will develop its used cars business to help keep the industry afloat amidst anticipated financing difficulties.

ASF president director Djoni Bunato Tjondro said on Tuesday the company would expand its used car business as demand for new cars is due to fall as the slow down impacts on people's purchasing power.

He said that ASF, a subsidiary of diversified business giant PT Astra International, would increase the proportion of used car sales up to 30 percent of its targeted 74,000 sales for the year, equal to 22,200 cars.

Last year, ASF's proportion of used cars was pegged at 20 percent of 91,000 sales, equal to 18,200 units. "The prospects for the used car business will be attractive because demand for new cars will drop, and from our last year's portfolio business, the segment has yet to be fully tapped," he said.

The Indonesia Automotive Industry Association (Gaikindo) targets that new car sales will decline by 33 percent to 405,000 units this year from 605,000 units last year due to weakening purchasing power.

More than 80 percent of Indonesian customers buy vehicles through credit schemes. It is predicted that most of them will face some difficulties paying their monthly instalments due to rather high interest rates set by financing companies.

Data from the Indonesian Financing Company Association (APPI) show that financing firms are still offering interest rates of 18 to 20 percent despite central bank rate cuts, with the latest cut leaving the benchmark rate at only 8.25 percent.

APPI forecasts that the financing industry will face bleak prospects this year with loan volume declining by 26 percent to Rp 100 trillion (US$8.5 billion) from an estimated Rp 135 trillion previously.

This gloomy outlook is also shared by ASF, which targets loan disbursements for car purchases to decline to as little as Rp 9 trillion this year from a total of Rp 11 trillion estimated for 2008.

Despite these alarming business conditions, the company will try to keep its nonperforming loan (NPL) rate at a level below 2 percent this year, Djoni said

Last year, ASF's NPL stood at 1.27 percent, down from 1.8 percent recorded in 2007.

In an attempt to mobilize funds for auto loans despite the global financial crisis, ASF also announced a plan to issue bonds worth Rp 600 billion. It is the tenth time the company has issued bonds to the market. Last year, ASF issued bonds with a value of Rp 1 trillion.

ASF Finance director Hugeng Gozali said ASF's new proposed bond issue is a part of company strategy to keep business rolling.

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