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ndonesia has the potential to be a major player in the low-cost, green car regional market if the government goes ahead with its plan to provide tax incentives and other support for the production of low-cost, environmentally friendly vehicles, according to Frost & Sullivan, a prominent global research firm.

The government-backed low-cost car and green car project would serve as a game changer, changing the landscape of the domestic industry and boosting car sales, both in the domestic and overseas markets in the long term, said Vivek Vaidya, the firm’s vice president for automotive and transportation practices in the Asia Pacific, on Thursday.

“The low-cost green car will completely change Indonesia’s position in the global automotive industry,” he told a press conference in Jakarta.

The government announced last year the so-called “low carbon emission program” to spur the development of eco-friendly vehicles to include hybrid cars, electric cars and “low-cost green cars” — vehicles with efficient fuel consumption.

To attain the goal, it is committed to providing fiscal incentives, including a reduction of a luxury-goods sales tax for locally made cost-effective green cars, at around Rp 100 million (US$10,363) and the capacity of engines that can run more than 20 kilometers per hour on 1 liter of fuel.

The industry players are still waiting for the issuance of the lower tax rate, but firms like Toyota Motor Manufacturing Indonesia (TMMIN) and Astra Daihatsu Motor (ADM) have unveiled their jointly produced Toyota Agya and Daihatsu Ayla to take part in the program.

Vaidya said that with bigger volumes generated from the low-cost and green car program, manufacturers operating in Indonesia could well catch up with Thailand, currently the regional automobile production base in Southeast Asia, by pushing up exports to new markets, particularly other developing economies like Vietnam and India.

“The specifications to which Thailand producers are manufacturing are quite high as they are targeting Japan, Australia and European countries. Meanwhile, Indonesia can produce competitively priced vehicles that can go to emerging markets. So, the segments are completely different,” Vaidya explained.

The global consulting firm also estimates that domestic car sales in Indonesia will rise by 7.5 percent to 1.2 million this year, driven by stable economic expansion and developments in varied business sectors, including retail and manufacturing.

This figure is in line with the projection by the Indonesian Automotive Industry Association (Gaikindo), which estimated car sales would reach around 1.2 million this year.

Gaikindo deputy chairman Jongkie Sugiarto said that low-cost green cars would contribute 100,000 to the total sales forecast for this year, giving new hope to growth in the market, Jongkie said.

Earlier, the group said that sales could reach 1.12 million, a similar level to last year, as producers anticipated a number of constraints that could hinder higher demand.

The constraints, pertaining to higher production costs, included increases in the minimum regional wage and basic electricity rate, and the depreciation of the local currency against the US dollar, pushing manufacturers to raise the price of their products, Jongkie said.

“The surge in car prices will affect people’s purchasing power, which will result in the delay of purchases, but our prudent macroeconomic fundamentals, strong gross domestic product (GDP) growth and the entrance of low-cost green cars bring new hope for growth potential in the market,” he said.

Last year, car sales reached a new record, settling at 1.12 million, up 24.83 percent from 2011, partly buoyed by an emerging middle-class with stronger purchasing power.