REPUBLIKA.CO.ID, JAKARTA/SYDNEY - Indonesia's auto industry is likely to register modest growth during 2014, driven by launches of low-cost green cars that tap demand from the country's vast population of medium and low-income consumers, Fitch Ratings says. 

The more affordable and energy efficient cars are helping to counter the effects of rising prices in the broader car market, higher borrowing costs and slowing economic growth on consumers. Domestic car sales rose by 11 percent yoy to 328,534 units in first quarter 2014,  data from Indonesia's Automotive Industry Association (Gaikindo) showed. 

Fitch expects this growth trend to continue during the rest of 2014, the first full year following the implementation in 2013 of tax breaks and other incentives by the government to encourage production of affordable, energy-efficient cars. The growth outlook for Indonesia's affordable, energy-efficient auto segment is robust because the cars cater to more price-conscious consumers. 

Prices of some of these models may be as much as 50 percent less than a small hatchback car from the same manufacturer. Manufacturers in this segment are likely to be in a better position to compete and defend their market share, especially during a downturn in auto demand.

Sales growth in first quarter 2014 was largely driven by newly launched affordable, energy-efficient cars, such as Toyota's Agya, Daihatsu's Ayla, Suzuki's Wagon and Honda's Brio. In first quarter 2014, car sales in this segment reached 43,999 units, or 13 percent of total car sales. 

Toyota's Agya was the top-selling model in first quarter 2014, with a 47 percent share of low-cost green cars, followed by Daihatsu's Ayla (29 percent), Suzuki's Wagon R (13 percent), and Honda's Brio (11 percent). Auto retailers say they expect gross margins for these affordable cars to be similar to margins for other cars, despite their lower selling prices. 

However, Fitch expects their EBITDA margins to be slightly lower because selling and other expenses will be similar to that incurred for other types of cars. 

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