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.