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Indonesia's vehicle sales seen reaching 500,000 in 2007

JAKARTA -- Indonesia's vehicle sales are likely to recover to about 500,000 units by next year from an expected 330,000-350,000 units this year, the chairman of Indonesia's automotive industry association said on Friday.

Indonesia's automotive industry sold a record high 533,910 vehicles in 2005, when interest rates hit a historic low, but has been hit badly by a government decision to sharply hike fuel prices and interest rates.

"For next year, it would remain hard to reach last year's level, but it is possible to get closer to 500,000 units," Bambang Trisulo told Reuters on the sidelines of Indonesia's first international motor show.

"That can happen as long as international oil prices do not reach $100 a barrel ... and the country's interest rates are at 10 percent."

Auto companies are hoping the motor show will help the ailing sector swing back into the fast lane, with many top global auto makers such as Japan's Toyota Motor Corp. and Honda Motor Co. Ltd. planning to unveil new models.

Automobile firms in the country of 220 million people are banking on the new models and the start of a declining interest rate cycle to rack up around 1.2 trillion rupiah in sales from some of the show's expected 200,000 visitors.

Domestic vehicle sales fell by 49.3 percent in the first half of this year from the year-ago period as the industry, with an estimated $9 billion worth of annual vehicle sales, struggled with high interest rates and weak purchasing power.

The government's decision in October to increase fuel prices sent inflation to its highest level in around six years and interest rates to an about three-year high.

The benchmark rate is at 12.25 percent and Bank Indonesia expects it to come down to around 11 percent by the end of this year if consumer price inflation continues to ease in line with targets.

Auto distributors are also hoping to lure customers back with attractive new models, especially in the small car segment, reflecting increased demand for small fuel-efficient cars since the fuel price hikes.

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