According to the latest data, the ASEAN light vehicle (LV) market is projected to decline by 6% year-on-year (YoY) to 3.11 million units in full-year 2024 due to double-digit sales declines in Indonesia and Thailand.
According to Gaikindo, Indonesia’s LV sales will decline by 14% YoY to 801k units in 2024, excluding the lowest total since 2011. The volume will decrease from July 2023 to December 2024. The financial sector tightens loan approvals as default rates rise. In addition, interest rates remain high despite a surprise rate cut by the central bank in September. The policy rate is currently at 6% compared to 3.5% during the Covid-19 era.
A weak rupiah has pushed up manufacturing costs (Indonesia is a net oil importer) and made new vehicle prices out of reach for many consumers. It is said that more and more customers are opting to buy used vehicles. The value added tax has increased from 10 percent in 2023 to 11 percent in 2024, which has not only increased the price of vehicles but also reduced the purchasing power due to the cost of living.
Additionally, demand from luxury sales tax cuts has been another contributor in recent years. The Indonesian government implemented lockdown measures in 2020, causing the market to shrink sharply by 53% YoY to 495k units that year. To support the automotive industry, the government has announced temporary tax reduction policies for two phases: March-December 2021 and January-September 2022. As a result, Indonesia’s LV sales are expected to increase by 66% YoY in 2021 and 16% YoY in 2022. Declining by 3% YoY in 2023 and 14% YoY in 2024. Additionally, average annual sales stand at 801k units between 2020-23, the same as 2024.
This suggests that the negative pull forward will fade and we expect some recovery in the market in 2025 after two consecutive years of decline. However, the recovery may be modest, with volumes increasing by only 5% to 841k units. We are very cautious about the near-term sales outlook for several reasons: a) credit growth is slowing, and credit conditions remain tight; b) The pace of interest rate cuts by the US Federal Reserve is slowing, making further interest rate cuts difficult for Indonesia’s central bank. and c) Trump’s protectionist trade policies could hamper international trade. For example, since China is Indonesia’s largest export market, high tariffs imposed on China will have an impact on Indonesia’s economy.
A key development in this report is that the Indonesian government will raise the value added tax on luxury goods, including vehicles, from 11% to 12% on January 1, 2025. ) are built with a minimum 40% content in the area. Therefore, the tax of qualified models will be 2%. In addition, the tax benefits have been extended to include hybrid electric vehicles (HEVs) and eligible models will be taxed at just 3 percent. However, full details of the HEV policy will be announced by the end of January. This should offset the increase in value added tax to some extent.
Thailand’s LV sales fell 20% in December 2024, marking the 19th consecutive month of decline. Sales in May 2023 posted the only positive monthly result between October 2022 and December 2024, and that was a 1% YoY increase. Thus, the country’s volume has declined by 26% for the second consecutive year in 2024, following a 9% YoY decline in 2023.
Several factors contributed to the negative trend in the Thai market:
Household debt rose from 80% of GDP before the pandemic to 89% in Q3 2024, the highest in the region. According to the Domestic Financial Research Institute, household debt, including informal loans, is estimated to be about 104% of GDP.
The Thai market is showing no signs of improvement. With high levels of household debt, financial institutions are not expected to ease lending conditions anytime soon. This has led us to cut our Thailand sales forecast for 2025-28. Volumes are now expected to increase by 7% to 604k units in 2025 and by 11% to 672k units in 2026, which is still lower than during the pandemic, which saw 782k units in 2020 and 744k units in 2021.
Moreover, since the US and China are Thailand’s two largest export markets, there is a big threat from Trump 2.0 policy. As such, Trump’s protectionist trade policy could have a significant impact on Thailand’s exports and overall economy and new vehicle sales.
“Indonesia and Thailand to grow in 2025 after two years of decline – GlobalData” was originally created and published by Automobile onlyA trademark owned by GlobalData.
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