Bareksa.com - Indonesia's petrol-price hike could put the brakes on the speed at which consumers in Southeast Asia's biggest auto market buy cars and switch to four-wheels from two.

President Joko Widodo last week cut subsidies and raised gasoline prices more than 30 percent to open the way for budget and other reforms.

In the long-term, the change should strengthen the Indonesian economy, now growing at its slowest pace in five years. In the short-run, it may impact auto sales.

Next year "car sales probably won't grow," said Leonardo Henry Gavaza, a senior research manager at Bahana Securities. "Motorbike sales will be more resilient."

Growth rates have been declining since 2010's stunning 58 percent rise. January-October saw only a 1.8 percent increase for a year earlier, reflecting how annual economic growth has slipped to 5 percent.

Jongkie Sugiarto, co-chairman of Indonesia's automotive association Gaikindo, said most people will find the higher fuel price affordable though some could be "thinking twice" about buying a car.

One factor crimping sales next year will be that right after prices were raised, the central bank its policy rate 25 basis points to 7.75 percent, the highest since March 2009, to contain on inflation expectations. It was first time Indonesia's benchmark rate changed in a year.

Nearly all buyers of cars and motorbikes use credit, so financing for them becomes expensive with higher interest rates.

Fitch Ratings has said some Indonesians will "delay their cars purchases" and choose more affordable motorcycles due to higher fuel prices.

But it said any impact on sales following subsidy cuts "is likely to be temporary and the risk profiles of auto players likely will not be materially impaired".

Fitch noted that in the 12 months after then-President Susilo Bambang Yudhoyono in 2005 raised fuel prices by 88 percent, car sales plunged 43 percent compared with the preceding year. Motorbike sales fell 12 percent.

When the government raised prices in 2013, car sales grew by 7 percent the next year and motorbike sales 11 percent. Growth in car sales "reflected the introduction of low-cost green cars in 2013 and price discounting by auto retailers", said Fitch.

Low-cost, small-engine cars such as Toyota's Agya have sold well, accounting for 13.9 percent of October sales, according to Gaikindo.

CASH OVER FLASH

Fewer than 4 percent of Indonesia's 240 million people own cars. While the middle-class has been expanding, there are still millions of Indonesians who cannot afford a car.

One is Muhammad Rahman, a 20-year-old university student who is in the market for a new motorbike in spite of the fuel-price increase.

The hike is having an impact on his thinking, though, as he's putting higher priority on fuel efficiency than flashiness.

"I've tried using a Yamaha before and it's less fuel-efficient compared to Honda," the 20-year-old university student said while shopping at a dealership in traffic-choked Jakarta. "The difference can be up to 10,000 rupiah in a week."

That's less than a dollar, but it can make a difference to Rahman and many Indonesians whose pockets aren't deep.

Gavaza of Bahana Securities predicts 3 percent growth for bikes in 2015. Such sales rose 9.6 percent in 2013 and were up 3.5 percent the first 10 months this year, the Indonesian Motorcycle Industry Association says.

Rahman said he's not yet able to consider four-wheels. In Jakarta jams, he said, motorbikes are "more strategic compared to a car". (Source : Reuters)