Astra Steps on the Brakes as Car Demand Crashes

Astra steps on the brakes as car demand crashes.  Diversified conglomerate PT Astra International is looking to adopt new survival strategies, including pushing down operational costs and increasing its digital presence, in the face of slumping vehicle demand worsened by the COVID-19 pandemic.

Astra, whose subsidiaries accounted for about half of the country’s domestic car sales last year, saw its automotive sales drop by 91.2 percent year-on-year (yoy) in April to 3,807 units, according to data from the Association of Indonesian Automotive Manufacturers (Gaikindo).

“Astra has over 200 companies and 200,000 employees. In order to survive, we have to think about our people and our business,” the company’s director, Henry Tanoto, said during an online discussion held by marketing firm MarkPlus on Friday.

The company’s tanking car sales align with nationwide Gaikindo data for April showing sales plunging by 90.6 percent.

The steep drop has led Gaikindo to slash its annual sales target by 40 percent to 600,000 vehicles in 2020, its chairman Yohannes Nangoi said during the discussion.

The automotive industry already experienced a slowdown last year. It sold 1.03 million vehicles in 2019, a 10.8 percent drop from 2018.

To weather the crisis, Henry said the company had adjusted its supply chain and modified its cash flow in the face of the slumping demand as a short-term strategy.

“We are quickly adjusting our supply to match the demand and will review our operational expenditure before preparing for the new business landscape,” he said.

Astra also hopes to expand its mobile services and boost its digital presence, as it anticipates a higher number of online vehicle purchases in the post-pandemic market.

“As our customers remain at home, we’ve seen an increase in our digital traffic by 50 percent and a 30 percent increase in our mobile services. We have to understand our customers in order to excel in the future market,” Henry said.

The company believes the market will start to improve by the third or fourth quarter of this year and will have returned to normal by next year.

Chris Apriliony, an equity analyst at brokerage firm Jasa Utama Capital, warned that despite the company’s contingency plan, slumping car demand would hit the company’s profit hard as car sales made up a big portion of the company’s revenue.

“According to 2019 data, 43 percent of Astra’s net profit comes from car sales. The sales drop will surely have a significant impact on the company’s profit,” he told The Jakarta Post on Sunday.

Astra pocketed Rp 21.7 trillion (US$1.57 billion) in net profit in 2019, roughly the same as its profit in the previous year. Its consolidated revenue slipped by 1 percent yoy to Rp 237.2 trillion, partly because of slow automotive sales even prior to the pandemic.

However, Chris said Astra could still make a profit this year as the company had sold its 45 percent stake in Bank Permata to Thailand-based Bangkok Bank earlier this year.

Astra’s parent company, Jardine Cycle and Carriage Ltd, estimated that Astra had cashed out with about Rp 17.46 trillion.

“While there will surely be a decrease in revenue, they still could post a net profit from the Bank Permata deal,” Chris said.

He said Astra should tighten its expenditure on marketing as demand for cars was projected to remain under pressure until 2021.

“Astra should be more conservative, hold its expansion plans and start to review its expenditures to reduce the toll of the drop in car sales on its net profit,” he said. Astra steps on the brakes as car demand crashes (Mardika Parama, The Jakarta Post)