Southeast Asia’s Automotive Market Faces Challenges Ahead
The ASEAN Light Vehicle (LV) market is expected to decline by 6% year-on-year (YoY) to 3.11 million units in 2024, primarily due to significant sales drops in Indonesia and Thailand.
Indonesia’s Struggling Automotive Market
Indonesia’s LV sales plummeted by 14% YoY to 801k units in 2024, marking the lowest total since 2011, excluding the pandemic-hit 2020. The downward trend is attributed to the financial sector’s tightening of credit approvals, high interest rates, and a weak rupiah, which has increased the cost of manufacturing. Additionally, the rise in VAT from 10% to 11% has eroded purchasing power, leading many consumers to opt for used vehicles instead.
Government Support and Recovery Expectations
The Indonesian government implemented temporary tax cut policies in 2021 and 2022 to support the automotive industry, resulting in a surge in LV sales. However, the market slowed down in 2023 and 2024. Despite the challenges, we expect a modest recovery in 2025, with volumes increasing by 5% to 841k units. The recovery is likely to be slow due to strict credit conditions, a depreciating rupiah, and the potential impact of Trump’s protectionist trade policy on global trade.
New Developments in Indonesia’s Automotive Policy
The Indonesian government has implemented a VAT increase from 11% to 12% for luxury goods, including vehicles, effective January 1, 2025. However, the government has also decided to continue the tax deduction on Battery Electric Vehicles (BEVs) and Hybrid Electric Vehicles (HEVs) that meet certain criteria. This move is expected to offset the impact of the VAT hike to some degree.
Thailand’s Automotive Market in Decline
Thailand’s LV sales dropped by 20% YoY in December 2024, marking the 19th consecutive month of decline. The market has been plagued by high household debt, tightened credit approvals, and a weak economy. As a result, we have cut Thailand’s sales forecast for 2025-28, with volumes projected to increase by 7% to 604k units in 2025 and by 11% to 672k units in 2026.
Risks and Challenges Ahead
The Thai market is expected to continue facing challenges, with financial institutions unlikely to ease lending conditions anytime soon. Additionally, Trump’s protectionist trade policy poses a significant risk to Thailand’s exports and overall economy, which could further impact new vehicle sales.
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