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Declining car sales put pressure on leasing firms: Fitch
The credit rating agency suggested that new car purchases are unlikely to accelerate significantly for the rest of the year due to the central bank interest rate hike in April.
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Cars line up to board the ferry at Merak Port in Cilegon, Banten on April 15, 2024. (Antara/Muhammad Bagus Khoirunas)
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decline in new car sales in Indonesia will push local multifinance companies to seek growth in other sectors, a major credit rating agency has said.
In a statement published on Monday, Fitch Ratings warned that such a switch could backfire if the lenders failed to maintain their credit risk standards, which could result in more bad loans.
Data from the Indonesian Automotive Manufacturers Association (Gaikindo) show that only around 215,000 new cars were sold in the first three months of this year, marking a 23.9 percent decline from the equivalent period of last year.
According to Fitch, the sales drop may be attributed to the general election in February, which caused people to defer some spending. However, the firm suggested new car purchases were unlikely to accelerate significantly even for the rest of the year, as the policy interest rate hike by Bank Indonesia in April could lead to higher car-financing rates.
“Around 80 percent of Indonesian car purchases use financing, and sales are sensitive to financing costs. Fitch now expects sales to fall to around 900,000 vehicles in 2024, compared with our earlier expectation that the figure would remain close to the 1 million units sold in 2023,” the company explained.
Fitch argued that the government’s moves to expand tax breaks on electric vehicles (EVs) may positively impact demand but would have a limited impact on overall car sales. It noted that the battery-based EV segment, which is eligible for the incentive, accounted for less than 4 percent of total car sales last year.
“We still expect financing and leasing sector receivables to expand at a high-single-digit rate this year, though this outlook could be threatened if auto sales fall by more than we assume,” the firm said.
