Based on sales figures (Table 1 & 2) released by the Association of Indonesian Automotive Manufacturers (Gaikindo) and the Indonesian Motorcycle Industry Association (AISI), four-wheel vehicle sales reached 73,000 units in December, a 16 percent decline month-on-month (mom), and two-wheel vehicle sales totaled 520,000 units in December, a 3 percent drop mom, as demand tended to decline toward the end-of-year on holidays.

 On a year-on-year (yoy) basis, both four-wheel and two-wheel sales, as expected, were down 7 percent, reflecting continued weak economic conditions with customers deferring purchases into the new year.

In December, the market share of Astra International (ASII) declined to 49.8 percent (November 2015, 52.6 percent; December 2014, 53.8 percent) with monthly sales of 36,500 units, a 20 percent drop mom and a 14 percent decline yoy, despite attempts to lower its inventory amid disappointing demand for its new models.

At the same time, Nissan booked monthly sales of 1,500 units, a 1 percent increase mom, but an 11 percent drop yoy. Suzuki booked strong December sales of 10,600 units, a 14 percent increase mom and a 5 percent increase yoy, due to its new Ertiga models.

Based on our channel checks, we are seeing reduced discounts across the board in January compared to December for 2016 cars. In January, a Toyota Avanza is being discounted by 5 percent at Rp 10 million (US$718), much lower than the Rp 24 million (12.1 percent) level in December. However, discounts for 2016 cars are similar to December 2015 discounts. It remains to be seen whether these smaller discounts can be sustained amid continued weak mining activities in the outlying areas.

ASII'€™s December two-wheel sales amounted to 339,000 units, a 14 percent decline mom and a 10 percent decline yoy, reducing market share to 65.1 percent (November 2015, 73.7 percent; December 2014, 67.5 percent).

On the flip side, Yamaha managed to improve sales (35 percent increase mom, 8 percent yoy) during the month, reflecting an improved market share of 32.7 percent (Novemeber 2015, 23.4 percent; December 2014, 28.4 percent).

With ASII losing market share in the four-wheel segment, the next competitive step could be heavier discounting in our view. This fight for market share is likely to be exacerbated by continued soft farm incomes as result of low commodity prices with some purchasing power recovery only to materialize in the second half of 2016. Thus, we expect margins to remain unexciting in spite of a low 2015 base. On volumes, we forecast flat domestic 2016 sales of 1.02 million units for four-wheel and 6.4 million units for two-wheel despite lower interest rates and gasoline prices. With that said, we expect intense competition and weak demand to result in flat market shares at best for both ASII and Indombil Sukses Internasional (IMAS).

At this stage of the market cycle, we retain our '€œunderweight'€ call on the Indonesia automotive sector on possible market share fight and due to limited purchasing power growth on weak commodity price trends.

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The writer is a research analyst at PT Bahana Securities.