Carmakers Boost Incentives to Clear Inventories in Indonesia

Indonesia's slumping economy is piling up supplies of unsold cars and pushing manufacturers into a bruising discount war, the Financial Times reports.

Car sales in Indonesia climbed an average 11% per year from 2005 to 2012, reaching a record 1.2 million units last year. Carmakers have spent $3.3 billion in 2013-2014 to hike the industry's annual capacity from 1.3 million units last year to 1.8 million.

Much of the new capacity has been added by Honda, Nissan and Suzuki in a bid to capture some of Toyota's dominant market share. The FT notes that Honda multiplied its local production base to 200,000 vehicles per year from 80,000.

Japanese brands control about 90% of Indonesia's car market. But as consumer demand cools, all are struggling to control inventories. Toyota has been offering discounts as high as 12% on some of its models, forcing its rivals to respond with similar programs.

Analysts tell the FT that Toyota's competitors appear determined to support their local distribution partners in the price war for the sake of their longer-term growth goals in Indonesia.