Karawang. Despite an increase in the number of producers and production capacity, Indonesia's annual auto sales have remained stagnant at around 1 million over the past decade, trailing behind Thailand. Industry insiders attribute the sluggish sales to an unfavorable tax regime.

"Growing competition among numerous players and an excess production capacity of over 2 million in Indonesia make it inefficient to serve a market of just 1 million," said Bob Azam, Deputy CEO of Toyota Motor Manufacturing Indonesia (TMMIN), in an interview with Investor Daily on Monday.

To revitalize the industry, industry players suggest that the government introduce business-friendly tax policies and double sales projections as incentives for increased investments. 

"A sales projection of 2 million, coupled with favorable tax incentives, will encourage investments," Bob said.

Lowering taxes in the automotive sector could not only stimulate car purchases but also boost state revenue by attracting more buyers. Bob argued that with reduced taxes, more people would invest in new cars, resulting in increased tax income for the government.

In 2023, national car wholesales experienced a 4 percent YoY decline to 1 million, from 1.05 million in the previous year, according to data from the Indonesian Automotive Industry Association (Gaikindo). The main factor behind the slowing sales was identified as the rise in bank interest rates, as 80 percent of Indonesian car purchases rely on loans from financing firms.

Annual auto sales have consistently surpassed 1 million over the last decade, except for 2020-21 when supplies and demands were affected by the Covid-19 pandemic.

While Japanese automakers continue to dominate the Indonesian market, South Korea's Hyundai and China's Wuling have witnessed growth in recent years. China's leading electric vehicle producer, BYD, recently announced a new investment in an assembly plant and sales network in Indonesia.

Fransiscus Soerjopranoto, Chief Operating Officer of Hyundai Motors Indonesia, said that his company now holds approximately 4 percent of the market share in Indonesia, reporting a 20 percent surge in sales last year. Hyundai's Ionic 5 leads the electric vehicle segment.

Toyota maintained its dominance in the Indonesian automotive industry with 339,292 sales, commanding a 33.7 percent market share last year. Daihatsu, a sister company, secured the second position with 188,000 wholesales, followed by Honda (138,967), Suzuki (81,057), and Mitsubishi (77,416).