As the economy continues to pick up steam, motorcycle sales are on the rise and the competition between financing companies for a share of this lucrative market is intensifying.
The Indonesian Motorcycle Industry Association (AISI) is forecasting 6.6 million new motorcycles will be bought this year, up from 5.8 million in 2008.
Around 70 percent of those motorcycles will be bought on credit and in malls around Indonesia it’s now possible to find financing companies willing to accept just Rp 500,000 - or even nothing in some cases - for a downpayment on a new bike.
However, some of the larger players are warning that a return to the days of easy credit may damage industry growth in the medium term and could lead to some financing companies getting into trouble.
“We’ve seen several financing companies begin to offer cheap downpayments these past few months,” said Armando Lung, marketing director at PT Busan Auto Finance. “I think it’s an unhealthy practice that will negatively impact the industry and the financing companies themselves,” he said.
“It is pushing people that can’t actually afford it to buy a motorcycle. The economy has improved but reckless financing will still lead to bad loans.”
Armando said there was major potential for many of the loans to go bad and that would have knock-on effects for the industry. If large numbers of customers defaulted on loans, many motorcycles would be re-possessed leading to a glut of second-hand motorcycles on the market which would hurt sales of new motorcycles, he said.
Armando said that, ideally, motorcycles buyers should make down payments of at least 15 percent of the total price of the bike. New motorcycles generally start from around Rp 11 million.
Yuky Hondojono, corporate secretary at PT Adira Dinamika Multi Finance, said that it was mainly smaller financing companies offering the cheap deals but some bigger companies were also getting in on the act, he said.
Larger companies usually just finance a single motorcycle brand, Yuky said. He said that Adira accepted downpayments as low as 5 percent in some cases but said that the average Adira downpayment was 17 percent.
PT Federal International Finance, a subsidiary of PT Astra International, that only finances purchases of Honda motorcycles, said it was offering cheap or zero downpayments but only through limited special promotions.
“It is a marketing gimmick, a limited period of promotion to attract customers,” said Thaufik Noograha, director at Federal International. “We are not that reckless and we are still being very careful about which types of customers that we offer zero downpayments to.”
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