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ndonesia’s domestic motorcycle sales took another dive in May as uncertainty over the government’s plan to raise fuel prices has caused a general increase in consumer prices, hurting purchasing power, an industry report reveals.

Total motorcycle sales in the fifth month of the year dropped 13.5 percent to 611,251 units from the figure recorded in the same period last year, the lowest level in 16 months, according to the Indonesian Motorcycle Industry Association (AISI).

AISI chairman Gunadi Sindhuwinata attributed the sluggish sales to consumers’ weakening purchasing power, prompted by soaring prices triggered by the announcement of the government’s controversial plan to raise fuel prices in April.

“Although the government delayed the fuel price increase, it caused an increase in the prices of basic goods,” he told The Jakarta Post.

According to the National Statistics Agency (BPS), inflation in May decreased to 4.45 percent on a yearly basis from 4.5 percent in April.

The industry expects market pressure to worsen with the introduction of a central bank regulation that raises the minimum down-payment for purchases of cars and motorcycles.

The increase in the minimum down-payment is intended to prevent a potential credit bubble and curb excessive increases in consumer loans. Under the regulation, the down payment for motorcycle purchases will be increased from 5 percent to 25 percent of the price. The regulation will take effect on June 15.

Gunadi said that this would definitely affect the sales of motorcycles, as most buyers still purchased motorcycles using credit and low down-payments.

“Seventy percent of buyers pay through credit and half of those buyers pay a down-payment of less than 10 percent,” he said, adding, “They will be the ones who are affected the most by the new regulation because they won’t be able to afford to buy motorcycles.”

Faced with the higher down-payment policy and possible fuel price hike, the AISI has lowered this year motorcycle sales’ target by 25 percent to 6.3 million units.

Prior to this, the association had revised its target to 8.4 million units from the initial 9 million units against the backdrop of the weakening motorcycle sales in the first five months of this year.

Motorcycle sales have been steadily declining for three consecutive months, starting in March with 619,678 units sold, a 12.8 percent decrease over the same period in 2011, followed by 12.4 percent fall in April of 617,508 units.

The Automotive Industry Association (Gaikindo) has also reduced this year’s automobile sales prediction, another key indicator of consumption in Southeast Asia’s largest economy, to 820,000 units from the initial 940,000 units expected.

Furthermore, the automobile industry is expected to take a hit from the central bank’s new credit policy, as people wanting to buy new cars will have to provide down payments of at least 30 percent, up from 10 percent previously.

This gloomy outlook however, hasn’t deterred car and motorcycle manufacturers from boosting their production in Indonesia, which offers enormous room for growth fuelled by its low vehicle-ownership rates.

PT Astra Honda Motor (AHM), a joint venture between the world’s largest motorcycle maker, Japan-based Honda Motor Co., and local conglomerate PT Astra International, plans to build a motorcycle factory in the Bukit Indah Industrial Estate in Karawang, West Java, beginning in the first half of 2012.

The construction of the firm’s fourth plant in the country, will cost Rp 3.13 trillion (US$330 million) and is set to start operating in the second half of 2013.

Last week, its carmaker cousin, PT Honda Prospect Motor (HPM) started the construction of its second plant in Indonesia, also located in Karawang, and will commence production in 2014. HPM intend to invest RP 3.1 trillion in the new factory. (han)