Jakarta. The Indonesian automotive industry is facing significant challenges as rising car prices and stagnant household incomes strain consumer purchasing power, leading to a decline in new car sales.

From January to September 2024, total wholesale sales reached 633,218 units, marking a 16.2 percent drop from 755,778 units during the same period in 2023. Retail sales also declined by 11.9 percent year-on-year, totaling 657,223 units compared to 746,246 units in the first nine months of 2023.

According to recent research presented during the Automotive Industry Roundtable organized by MarkPlus on Wednesday, titled Navigating The Future of The 4W Industry, the rising costs of new cars are becoming increasingly out of reach for many consumers. This disparity is a key reason why consumers are moving away from the new car market.

"Our study found that 56 percent of consumers feel that the price of new cars is growing far beyond their income levels, 50 percent believe vehicle taxes are too high, and 37 percent are burdened by high interest rates on car loans," said Iwan Setiawan, CEO of MarkPlus, Inc. and Marketeers.

"Additionally, 26 percent of consumers are opting for used cars because they are more affordable. These trends indicate that the new car market is becoming increasingly inaccessible for the majority of consumers," Setiawan added.

The main challenge, Setiawan noted, is the stark contrast between rising car prices and slow growth in household incomes. Over the past decade, car prices have increased by 37 percent, while household incomes have only grown by 28 percent during the same period.

This gap has further strained consumers' purchasing power. "The price of a new car now exceeds the average annual household income, forcing many to either choose used cars or delay their purchase altogether," Setiawan continued.

Consumer preferences are also shifting, with more buyers expressing interest in electric vehicles (EVs). While EVs offer an environmentally friendly alternative, their prices remain out of reach for many. However, this shift toward greener vehicles presents an opportunity for automakers to innovate while maintaining affordable pricing.

Rising interest rates from Bank Indonesia (BI) are also affecting consumers' willingness to purchase new cars, particularly those relying on financing. Higher interest rates lead to heavier monthly installments, making new cars less affordable for many.

Iwan Kurniawan, MarkPlus’s senior analyst, explained that while most Indonesian consumers still conduct online research before purchasing, they prefer to make their purchases offline. This trend challenges automakers to enhance both their digital services and physical showroom networks, especially for electric vehicles, which require in-person verification before purchase.

As new car prices continue to rise, automakers face increasing pressure to develop strategies that meet the needs of consumers burdened by high costs. Companies will need to create more affordable vehicles to remain relevant in a market that is becoming harder to access.

"With the shift towards electric vehicles and growing consumer awareness of sustainability, this segment still offers significant market potential, as long as prices can be reduced and made more accessible to Indonesian consumers," Setiawan concluded.

Setiawan emphasized that innovation and strategies to improve consumer purchasing power will be key drivers for the future of Indonesia’s automotive industry. Without adjustment, the new car market could lose its appeal amid ongoing economic challenges.

In response to these trends, the Indonesian Automotive Industry Association (Gaikindo) has revised its 2024 vehicle sales target from 1.1 million units to 850,000 units. Gaikindo Chairman Jongkie Sugiarto explained that the automotive market, particularly for passenger vehicles, has been sluggish throughout 2024, prompting this downward revision.