Indonesia Car Finance Market Research Report to 2021: Ken Research

Indonesia Car Finance Market Overview

The Indonesia car finance market is dominated by multi finance companies which majorly cater to the middle-class population. There are over ~ finance companies in Indonesia, of which over 100 provide automobile and motorcycle finance services. Consumer finance accounts for ~% of the total value of multi finance industry. The car finance market increased from USD ~ billion in 2011 to USD ~ billion in 2016 at a CAGR of ~%. The major growth drivers include expanding urban population, growth in new and used car sales, lowering lending rates and customizing loan schemes. The market has witnessed stringent government regulations in terms of adhering to the minimum capital requirements, revision of down payment requirements and submitting a financial report.

Multi finance companies today offer convenient facilities with an online presence which has reduced documentation, digital installment payment system and simpler procedure. This is the reason why consumers prefer to deal with multi finance companies rather than commercial banks.

Captive and non-captive companies majorly target low income and lower middle class as it is difficult for them to meet the stringent requirements of commercial banks due to their lower credibility. Various Fintech startups have also come up in the Indonesian financial sector which poses a threat to multi finance companies. These startups have developed products to augment the digitalization of the banking sector. This includes digital payments, online lending, and remote banking facilities which have made the consumer lending process uncomplicated further facilitating the car finance market in Indonesia. During the same period, the used car finance market increased at a positive CAGR of ~% from USD ~ million in 2014 to USD ~ million in 2016. This was supported by an increase in used car sales from ~ in 2014 to ~ in 2016. The advent of auto classified including Carmudi and OLX made potential buyers more aware of the prevailing prices in the market giving them higher bargaining power while negotiating with used car dealers.

How Have The Different Segments In The Indonesia Car Finance Market Performed?

By New Car and Used Car Finance: New car finance has accounted for a larger share of ~% in the Indonesia car finance market in 2016. Whereas, used car finance contributed ~% in the market revenue. The share of used car finance has increased over the years from ~% in 2013 to ~% in 2016. Since the value of new cars is greater than that of used cars, therefore the credit disbursed in the new car segment is higher. By Tenure of Loan-New Car: It has been observed that people opting for 3-year loan tenure has accounted for ~% of the new cars financed in 2016 followed by 2 years loan tenure with ~% of the number of new cars financed in 2016 whereas 4-year loan tenure contributed ~%, 1-year loan tenure contributed ~% and 5 Years loan tenure contributed only ~% in the number of cars financed in 2016.

By Tenure of Loan-Used Car: People opting for a 2-year loan tenure of used cars has have registered a share of ~% in the number of used cars financed in Indonesia in 2016. This was followed by 3-year loan tenure with ~% and 1-year loan tenure with ~% share while only ~% of the used cars have been financed for loan tenure of more than 3 years. Shorter tenure is usually chosen due to easier installments and the lesser price of used cars.

Financial and Non-Financial Institutions (New Car): Commercial banks and financial institutions have accounted for ~% of the credit disbursed for a new car in 2016. The non-financial institutions which include captive and non-captive finance companies have contributed the remaining ~% of the credit disbursed for new car financing in 2016. The documentation and procedure are more cumbersome while approving a car loan from commercial banks as compared to that approved from non-financial institutions.

By Financial and Non-Financial Institutions (Used Car): In the used car segment non-financial institutions have accounted for the larger share of ~% of the credit disbursed for used cars in Indonesia in 2016. Whereas commercial banks contributed the remaining ~% of the credit disbursed in 2016. Majority customers availing used car loans lie in the low-income level group. Used car loans are riskier as the chance of default is higher. Therefore, customers do not prefer going to a commercial bank for such loans due to stringent regulations.

Company Profile of Major Players

The industry is fragmented and each company caters to its own niche by specializing in several categories such as product financed (4W, 2W, HE) and geographical reach. The car finance market is dominated by multi finance companies as they offer car loan services to middle-class people who form the largest proportion of customers availing car finance. Multi-finance companies are owned by banks (both domestic and foreign), brand-holding sole agents (ATPM) of cars and foreign principals of carmakers such as Astra and a few which are family/individual-owned. The strong multi-finance companies are those affiliated to banks or car makers and ATPMs. Multi-finance companies generate better returns as compared to banks. The major multi-finance players record higher ROE and ROA as a result of the benefits of higher asset yield which outweigh the negatives of the higher cost of funds, operating cost and credit cost.

What Have Been The Trends In The Market?

The market has witnessed an increased use of technology such as simulation tools, online application, and payment methods and others. In order to stimulate the economic growth of the country, Otoritas Jasa Keuangan (OJK) reduced the down payment requirements in effect increased the Loan to value ratio in 2015. Indonesian consumers who use credit to purchase a passenger car need to pay a minimum down payment of ~%, from ~% in 2014. Recovery of the Indonesian economy, lower financing rates, and improved business environment have positively impacted the consumer confidence index of Indonesia. This has resulted in increasing car sales in 2016 out of which ~% are financed by banks and other non-financial institutions. Easing inflation rates and increasing purchasing power has further supported the consumer confidence index. With the success of new car models by major players in the Indonesia automotive industry, the number of new cars sold increased by ~% in 2016 from ~ in 2015 to ~ in 2016. The major players which include Toyota, Honda and Daihatsu have accounted for ~% of the passenger car sales market in 2016. The low-cost green car is witnessed the fastest growth during 2016 which accounts for ~% of the total manufactured cars. Furthermore, Indonesia’s premium gasoline and diesel fuel prices declined by IDR 500 per liter which is a lagged effect of on sliding international crude oil prices that occurred in Q4-2015. Recent times have witnessed rising internet penetration and the use of online portals such as Carmudi, OLX, and Mobil88 for selling used cars which have streamlined this market.

How Is The Market Expected To Perform In The Future?

The Indonesia car finance Industry is expected to increase from USD ~ billion in 2016 to USD ~ billion in 2021 at a CAGR of ~%. The market will be driven by an increase in the sale of passenger cars, inflated ticket size and increased penetration rate. The passenger vehicle segment of Indonesia’s automotive industry is estimated to grow at a CAGR of ~% from 2016 to 2020. The low-cost green car segment (LCGC) is expected to experience the fastest growth at CAGR ~% from 2016 to 2020. Furthermore, with the proportion of Indonesians living in urban areas expected to reach ~% by 2030, significant infrastructure development and growing working-age population, the sale of passenger cars will grow. Moreover, with ~% of Muslims in Indonesia, Sharia finance has huge potential. While more savvy consumers and stricter regulations could curb short-term credit growth, the spread of fintech, which uses innovative technology in financial services, could deliver a new range of customers to multi-financing firms. Fintech can improve consumer financing by public relations campaigns facilitating broader reach as well as increasing credit profiling and providing a different approach to risk management

Analyst Recommendation

In order to increase access and build a customer base, car financing companies need to increase their presence. This can be done by opening branches in different parts of the country and tying up with various dealers and car rental companies. This would enable to enhance the demand for commercial car finance. Customers also benefit from an enhanced digital customer journey as the integrated platform allows for real-time updates, pulling agreement details up instantly and allowing customers to post immediate payments into their accounts. Next, finance companies can tie up with colleges and universities as such places present huge potential in terms of youngsters applying for car loans in the near future. Applying for a car loan involves tedious documentation, complicated formalities, eligibility criteria’s, timely installment payments and others. Financing companies need to take various things into consideration and offer a customized scheme to an individual that suits his lifestyle. The companies need to sell the benefit and not the loan highlighting how taking a car loan makes it easier for them to own a car. In Indonesia, the used car financing penetration is relatively low. With the digitization of the sale of used cars, the used car financing segment has untapped potential. In the current scenario, used car finance is offered by private finance companies at a major rate. Since the demand for used cars is increasing every year the existing private finance companies may not be sufficient to fully meet the market demand. If the banks enhance their focus on used car finance, it would raise the amount of credit disbursed augmenting market growth.

Companies Cited in the Report

List of Companies                     Companies Covered in the Report

BCA Finance

Astra Sedaya Finance

Oto Multiartha                             Major Players

Mandiri Tunas Finance

Toyota Astra Financial Services

Adira Dinamika Multi Finance

Dipo Star Finance

Suzuki Finance Indonesia

CIMB Niaga Auto Finance

Key Topics Covered in the Report:

Used Car Sales in Indonesia

Top Indonesia Car Loans Banks

Indonesia Average Loan Rate

Auto loan Industry in Indonesia

Used Car Financing in Indonesia

Interest Rate Car Loan in Indonesia

Compare Auto Loans in Indonesia

Used Car Sales in Indonesia

Vehicle Financing in Indonesia

New Car Sales in Indonesia

Indonesia Car Finance Market Size

Indonesia Car Finance Value Chain

Government Regulation, Decision Making Process of Customers and Trends and Developments in Indonesia Car Finance Market

Future Outlook for Indonesia Car Finance Market on the basis of Type of Car Financed

Company Profiling of Major Players Indonesia Car Finance Market

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