New cars running low on gas, hit by fuel price hikes

Debnath Guharoy, Debnath.Guharoy@roymorgan.com

The industry hit hardest by the twin fuel price hikes of 2005 was perhaps the automotive industry, more precisely, the new-car market. No surprises there, considering cars are a family's second-largest "investment" and unlike the home, they run on fuel.

The recovery that's now taking place in the car market has switched dramatically in favor of used cars, not new cars. These conclusions are based on Roy Morgan Single Source, Indonesia's largest syndicated survey with 25,000 respondents annually, covering 90 percent of the population over the age of 14.

The survey also reveals that on the broader canvas of transportation, the use of public transportation has also remained flat since September 2005. People, especially at the lower end of society, are using transport more for essential travel and seemingly less for leisure.

About 60 million people around the country regularly travel by bus, while almost million use the train. These numbers have remained flat. In contrast, two-wheeler buying intentions are now on the way up reflecting the confidence of the middle class.

Moving up the socio-economic ladder, about 12 million people often travel by taxi, almost unaffected by recent inflation, but only 4 million households have a car in urban Indonesia. These do not include institutionally owned vehicles like company or government-owned cars used at home after working hours. Nor do these figures include the few rural homes that have cars.

Demand has dipped for cars, and crashed in the case of new cars. The signs of sluggishness over the near term are a major problem for the automotive industry. On the other hand, the administrative authorities in major cites like Jakarta, for example, already overwhelmed by traffic congestion, are probably sighing with relief.

Dealers in used cars are in for good times ahead -- witness the upward swing in demand. How is the new car industry reacting? Only by understanding the people who have dropped out of the market, and analysing the needs of people who remain interested in new cars, will automotive manufacturers be able to chart a course for the future.

Any attempts to simply "move metal" off the factory floor based on knee-jerk reactions will be fraught with danger. For years, the Toyota brand has gone from strength to strength with well over half of all people planning to buy a new car actively considering the brand, across all categories.

A lot of that success is thanks to the ubiquitous Kijang. Today, that grip on the new car buyer's mind has loosened with only 43 percent of intending purchasers planning to buy a Toyota model. The signs of change in market dynamics were ignited by the price of fuel, so that a different marketplace exists today, which is a problem for some and an opportunity for others.

These are the facts that Toyota needs to respond to in its attempts to protect market share and brand equity. These are the same facts that all their competitors need to understand if they wish to seize the opportunities presented by a market in flux.

This is yet another industry that has ignored the influence of the Indonesian woman. All of the "evidence" that carmakers have traditionally based their marketing upon has consisted of registration papers and financing documents, usually in the name of the man of the house.

Yet, over a third of the people currently intending to buy a new car are women. Whose name finally appears on the documentation is almost irrelevant. The people who often, but not always, influences the decision to purchase is the primary owner-driver, so that it is these people who are vital to success in the marketplace.

If the current demand for new cars stands at 168,000 units, isn't it important to understand the key drivers, as well as the lifestyles and needs of the owner-drivers themselves?

But look around you and what do you see in the media out there? Billboards can be justified by the need to command a "presence" but the use of free-to-air TV defies logic.

The fact that almost everybody watches TV everyday is not an intelligent rationale when it's obvious that most of the viewers won't be buying a new car any time soon. If "the medium is the message", then Pay TV would be a far more focussed choice.

Combine that with selected newspapers and magazines, radio stations in cities where the intenders reside, and promotions and financing packages offered from appropriate shopping malls, then today's scarce resources would end up being put to better use.

All it takes to verify the media selections is a simple quantification of people intending to buy, say, a "small car", the people who will consider or reject the makes within that segment and the capability of each title, radio station, channel or even major shopping mall to reach that identified group.

Savvy marketers and their agencies are doing precisely that today, across every conceivable product category. It gives a whole new meaning to that oft-abused word, "accountability", especially when all the stakeholders of the brand can monitor progress every 90 days.

I should add that I have nothing against TV and I don't have any pecuniary interest in any other media, either. Nor has the invitation to speak at this week's seminar hosted by SPS, the Publishers Association, led to a "plug" here for the printed medium. A detailed look at the Indonesian media scene will be featured in this column next Tuesday.

The contributor is an advertising professional, turned researcher and consultant, based in Melbourne. He has lived and worked across the Asia Pacific region, including Indonesia. He remains a regular visitor.
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