The Second-Hottest Car Market In The World

As Indonesia's economy revives, auto sales are growing at a pace second only to China's

Jakarta teacher Bachtiar Aming sometimes yearns for the dark days of Indonesia's financial crisis in 1998. Back then his commute to work at a small computer college was just 20 minutes on deserted streets. Now that the traffic jams are back, it takes an hour. Indonesia's economy is growing again, and that has triggered record vehicle sales. "There are just too many cars, trucks, motorcycles everywhere," Aming laments. "But if I don't have a car, I won't have a job."

China and India's double-digit growth in car sales has gotten worldwide attention. But Indonesia, the world's fourth-largest country by population, is also one of its hottest car markets. Driving the sales are cheap financing and plenty of new, low-priced models such as the popular Toyota Kijang sport-utility van, assembled locally by Astra International.

This year auto sales will likely grow 32% from 2003, to 465,000 vehicles, estimates Mandiri Securities in Jakarta. That makes Indonesia the third-largest market in Southeast Asia after Malaysia and Thailand and the second-fastest growing after China. It marks a steep recovery from 1998, when demand plunged to just 58,000 vehicles amid the Asian financial crisis. "The rebound has been spectacular," says Cheong Kwok-Wing, a UBS analyst in Singapore.

Indeed, analysts say that if the economy stays on track, auto sales could triple, to 1.3 million vehicles, by 2010. There's plenty of room for growth. Just 1 in 35 Indonesians owns a car, compared with 1 in 14 Thais and 1 in 7 Malaysians. "After China and India, Indonesia is clearly the biggest [sales] opportunity for car manufacturers anywhere in Asia," says Philip Eng, CEO of Singapore's Jardine Cycle & Carriage Ltd., which owns a 42% stake in Astra.

Behind the recent surge in demand is a pickup in consumer spending after a long spell in the doldrums. That has been driven by a sharp increase in lending by banks. Right now car purchasers can get loans on a new model with as little as 5% cash up front. That compares with the 20% down payments common just a few years ago. Competition and cost reductions have also led to lower sticker prices. Entry-level passenger vans such as Suzuki Motor's four-wheel-drive Karimun cost up to $14,000 before the Asian crisis. Updated versions of the same model now go for under $10,000. "It's the affordability that has fueled the car boom," says John Slack, Astra's chief financial officer.

Unlike in China and India, big global auto makers aren't rushing to build manufacturing capacity in high-risk Indonesia. But as long as the economy holds up and the price is right, the country's showrooms will be packed -- no matter how bad the traffic.

By Assif Shameen in Singapore

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