Cheap loans leads to motorcycle boom, industry players say

Cheap loans leads to motorcycle boom, industry players say

Rendi A. Witular, The Jakarta Post, Jakarta

Sudjono's motorcycle is no longer just a means of
transportation, but has become an important business asset.

Aside from using his motorcycle to avoid traffic jams,
Sudjono, who operates several meatball stalls in Central Jakarta,
uses the bike to transport merchandise from his house to his
stalls, and to go to the market to buy the ingredients for his
meatballs.

Sudjono is among millions of people who, thanks to low
interest rates, was able to secure the financing necessary to buy
a motorcycle.

With a down payment of just Rp 500,000 (US$55) and monthly
installments of Rp 350,000, people like Sudjono, who earns about
Rp 1.5 million a month, can now afford motorcycles. The cheapest
motorcycle on the market, a Chinese-made bike, costs about Rp 7
million.

Affordable financing is contributing to the skyrocketing
demand for motorcycles. It is estimated that motorcycle sales
will reach about four million units this year, the highest level
since before the 1997 economic crisis, with sales projected to
rise to five million units next year.

High demand for motorcycles has had a multiplier effect on
other sectors, including the financing business, which is
estimated to grow by at least 25 percent next year to Rp 50
trillion ($5.55 billion) from an estimated Rp 40 trillion this
year.

"Motorcycles are no longer just a means of transportation, but
'capital goods' for many Indonesians who can't get jobs in the
formal sector," Benny Wennas, president of financing firm PT
Wahana Ottomitra Multiartha (WOM), said recently.

"More than 50 percent of new motorcycles are bought with loans
from financing companies. People in the village now prefer to buy
motorcycles than electronics and household goods, with most of
them going through financing companies," he said.

Benny said that in addition to rising personal incomes, the
poor condition of public transportation in large cities was a
factor in the high demand for motorcycles. People, he said, need
smaller vehicles to escape the traffic jams.

The president commissioner of PT Federal International Finance
(FIF), Gunawan Geniusahardja, said the financing business had
grown rapidly since the central bank began lowering interest
rates last year.

He said another factor in the growth was rising incomes,
particularly among people living in rural areas.

"People in rural areas now enjoy higher incomes and are eager
to seek loans to buy motorcycles. It is not merely for business,
but for transportation and status," said Gunawan recently.

The Indonesian economy, the largest in Southeast Asia, is
expected to grow 5.5 percent next year from an estimated 5
percent this year.

FIF is the largest motorcycle financing company in the country
with about a 60 percent market share, followed by PT Adira
Dinamika Multi Finance with about 13 percent and WOM with about a
10 percent share of the market.

All three financing companies are part of much larger
companies. WOM is controlled by publicly listed Bank
Internasional Indonesia, FIF by automotive giant PT Astra
International and Adira by Bank Danamon.

The companies hope to finance between Rp 1.5 trillion and Rp 3
trillion in new motorcycle purchases next year.

FIF and WOM plan to issue respectively Rp 1 trillion and Rp
700 billion worth of bonds next year to raise cash for the
expansion of their financing businesses.

Benny said financing companies would have the opportunity to
expand over the next five years, with demand for motorcycles
expected to remain strong.

"There is a possibility that motorcycle sales will stop
growing five years from now as personal income continues to rise,
which might prompt people to turn to cars. It is also possible
public transportation will have improved by then," he said.