(JP/R. Berto Wedhatama)

Stronger purchasing power in the automotive sector and better public environmental awareness are fueling the demand for low cost green cars

Amid Jakarta'€™s notorious traffic congestion, worsening traffic in other big cities in Indonesia and the country'€™s lucrative automotive sector - carmakers keep on placing their faith in the latter.

Evidence of Indonesia'€™s promising car market is higher demand for LCGCs and more carmakers have launched eco-friendly vehicles.

Data from the Association of Indonesian Automotive Manufacturers (Gaikindo) shows the country saw car sales rise by 10.93 percent, higher than estimated, to 328,534 units in the first quarter of 2014 compared to the same period last year.

According to the data, sales growth in the January-April period was mostly driven by LCGCs including the Daihatsu Ayla, Honda Brio, Suzuki Wagon and Toyota Agya. Sales in this segment reached 43,999 units, 13 percent of total car sales in the period.

In the first quarter of this year, the Toyota Agya ranked top with a

47 percent share of LCGCs. The Daihatsu Ayla was second with 29 percent, followed by the Suzuki Wagon (13 percent) and the Honda Brio (11 percent).

The positive outlook on these cars, which are considered environmentally friendly and more affordable, has encouraged players in the industry to lure more potential buyers, particularly members of Indonesia'€™s growing middle-class.

Consulting firm Frost & Sullivan estimated earlier this year that car sales in Indonesia would increase by 6.5 percent, up to 1.31 million units in 2014. The company said the increase in LCGC sales would boost this year'€™s car market, which was projected to rise to 150,000 units from 51,000 units in 2013, mainly due to the presence of new players.

In addition to Daihatsu, Honda, Suzuki and Toyota, which have all long been popular in Indonesia, Nissan is preparing to strengthen its presence in the country.

Recently, Nissan Motor Co., Ltd., Japan'€™s second-largest automotive maker, opened its new Â¥33 billion plant in Indonesia. According to the company, the manufacturing facility, located in Purwakarta, West Java, includes body assembly, paint, trim and chassis operations. With the expansion, Nissan increased its production capacity from 100,000 units per year to 250,000 at full ramp-up.

The company said the initial production would be dedicated to assembling Datsun vehicles for customers, adding that the Indonesian government had approved its LCGC program with the Datsun GO+ Panca car.

'€œWith this approval, Nissan will enter the LCGC segment, which is expected to be the growth engine for motorization in the archipelago,'€the statement said.

The LCGC program in Indonesia exempts cars with engines below 1,200 cc and with a minimum fuel consumption of 20 kilometers per liter from luxury taxes. In addition, the tax exemption applies to diesel or semi-diesel vehicles of up to 1,500 cc, with the same minimum-20-km/liter fuel consumption. Currently, new vehicles are subject to taxes of up to 75 percent, depending on engine size.

As partly implied in the term, LCGCs are estimated to drive domestic sales in Indonesia as the prices, averaging at around Rp 100 million, are much lower than conventional cars and are considered pocket-friendly for those in the emerging middle class, which makes up more than half the country'€™s 240 million population.

As the middle class is estimated to grow, with strengthening purchasing power, it'€™s reasonable to assume this segment will consider cars as an essential part of everyday life.

However, cars can be serious polluters, damaging the environment due to traffic congestion. Data from the University of Indonesia (UI) shows traffic jams in Jakarta generate estimated losses of Rp 12.8 trillion per year, in terms of time, fuel consumption and health costs.

Purchasing an LCGC is an option for potential buyers. People can now hope that emissions will somehow drop. These vehicles are usually much more environmentally friendly as they have less toxic emissions and use sustainable fuel.

In the meantime, we can also hope that the owners and drivers of these green cars will adopt a green driving style.

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