Thu, 23 Apr 2009
Dreaming of Cheap Cars for the World
Tempo Magazine No. 34/IX
April 21-27, 2009

The government wants to turn Indonesia into the world’s cheap-car production base. Incentives will be provided, but there will be several constraints.

Mobil Arina

ONE Friday afternoon at the beginning of April, the parking lot of Patra Jasa Hotel on Jalan Sisingamangaraja, Semarang, was suddenly crowded. Dozens of people were swarming around Minister of Industry Fahmi Idris who was testing a tiny car prototype with a 200cc engine produced by Semarang State University. Wanting the same experience, visitors drove or simply sat inside the yellow car with the brand name Arina (Armada Indonesia or Indonesian Fleet). The faces of those who got the opportunity to test the four-passenger car beamed.

Arina is a unique car. It’s slightly smaller than the Suzuki Estilo or Kia Picanto city car. The car is very economical because a mere 1 liter of fuel lasts a distance of 40 kilometers. The price is relatively cheap as well, approximately Rp30 million only. Arina adds to the long list of cheap and thrifty “native” Indonesian cars. Previously, there were Kancil, produced by PT Industri Kereta Api (Inka), and Gea, designed by the Agency for the Assessment & Application of Technology and Inka.

According to Fahmi, the government hopes that big national businesses will be interested in producing cheap cars originally made in Indonesia - not by principal productions (world automotive producers opening factories in Indonesia). Such cheapcar production, he says, must be done by big businesspeople. If not, the impact on market and consumers will be very weak. Consequently, there will not be any mass cheap-car productions. “It will stop at prototype only,” he told Tempo in Jakarta last week.

To make the dream come true, said Director-General for Transportation Equipment & Telematics, Budi Darmadi, the Department of Industry is preparing a concept on the regulation on and incentives for lowcost cars. In the concept that will be completed this year, the government’s target is that in the coming two or three years there will be 1,000cc cars at a price of Rp7080 million per unit or Rp5060 million per unit using the net present value. “Car prices of Rp90100 million are expensive. These must go down,” he said.

Whether the car types will be multipurpose vehicles, sport utility vehicles, or city cars, said Budi, it depends on the market and producers. What’s clear, he said, is that the cheap cars will not be the same as the Nano produced by Tata India whose price is Rp25 million per unit. The Nano, according to him, is an ultralow cost car that eliminates certain elements.

In the government’s concept, the domestically produced cheap cars will still retain safety elements. The government also hopes that the cars will not be gasguzzlers, consuming gasoline or diesel up to 2025 kilometers per liter, above today’s average cars of 12 kilometers per liter. The cars’ body paint will not be oil-based but environmentally friendly water-based.

There are several reasons for the government’s efforts in seeking such a cheap car. First, the national automotive industry already has the technical capability to create various types of vehicles. The Indonesian community can already produce car components and spare parts such as tires, engines, bodies,
shock absorbers, springs, and chassis. Car electronic systems such as lights, wiring, and upholstery can also be produced here.

Secondly, the government wants to create job opportunities in the automotive industry sector. So far, said Budi, 194,000 people nationwide produce fourwheeled vehicles. “This doesn’t include carwash places and small car-repair shops,” he said. “Mass production of cheap cars will create even greater job
opportunities and encourage economic growth,” he added.

The third consideration, said Budi, on the market side opportunities are also wide open. There are 20-30 million motorcycle owners who can afford to buy cheap cars costing Rp50-60 million. Today, the annual car sales figure is about 600,000 - this year it will decline due to the global crisis.

Nyoman Jujur of the Agency for the Assessment & Application of Technology, agreed. Technically, he said, Indonesians are capable of producing their own cheap cars. Manufacturers here are capable of producing from vehicle body to engine block - except carburetors. “We are also capable of the engineering,” said Nyoman, who is currently involved in Gea car manufacturing.

Thus, producing cheap cars with a price tag of Rp5060 million is not an impossibility. “However, there is a condition: the majority of the components must be produced domestically or locally,” said Nyoman, reminding that cheap cars would remain safe. It’s just that several non-crucial components, such as power windows and auto locks, will be eliminated. Several instruments on the dashboards will also be minimalist.

The government has actually proposed the concept on the regulation on and incentives for low-cost cars to national businesses. Unfortunately, local investors are not yet interested in producing such cheap cars. “We’ve approached themIt seems they’re concerned about the risks, because car manufacturing requires large investments,” said Budi.

Since no national businesses are interested yet, the government has no choice but to offer the cheap car concept to the automotive principals in Indonesia, such as Toyota, Suzuki, Daihatsu, Hyundai, and Mitsubishi. “The government has lobbied big car manufacturers to produce cheap cars,” whispered a Tempo
source in Jakarta.

Budi admitted it. According to him, since 2007, the cheapcar plan has actually been discussed with the automotive principals. In 2008, the government has also met with Toyota Motor Corp, Japan, executives including Senior Advisor Member of the Toyota Motor Board, Hiroshi Okuda, and President of Toyota Motor Asia Pacific, Ryoichi Sasaki. “In principle, they agreed with the proposal,” he said.

CEO of Toyota Astra Motor, Johnny Darmawan, when asked for confirmation by Tempo, didn’t deny it. “The government is taking the initiative because the future car trend is lowcost and economical,” he said. Toyota Astra Motor has also asked Toyota in Japan to consider cheap cars for the Indonesian market. However, so far, the world’s largest automotive producer hasn’t decided yet to produce cheap cars in Indonesia in the near future. “The idea is being considered, but I have no idea when it will materialize,” he said, adding that cheapcar prices could reach Rp70 million. “But, cheap cars aren’t like the Nanos. As far as I’m concerned the Nano is merely a motorcycle dressed up as a car.”

Unlike Toyota, Hyundai Indonesia claimed that they hadn’t been approached by the government. “Until now we haven’t received any requests. But we (Hyundai) are technically ready to manufacture cheap cars,” said CEO of Hyundai Mobil Indonesia, Jongkie Sugiarto, to Tempo. Suzuki said the same. “None,” said CEO of Indomobil Suzuki International, Gunadi Sindhuwinata.

Gunadi is also convinced that cheap and economical cars will be the trend for future cars, so automotive principals will certainly consider them. Actually, he said, car producers in several countries, especially Suzuki, already have small car types with a 600800cc capacity. The problem is, car producers must invest anew if they want to produce cars of below 1,000cc in Indonesia. With today’s annual car sales volume of 600,000 units - fought over by more than 10 principals - it’s hard for producers to reach a unit sales price of Rp5060 million.

Automotive producers are also concerned that not many Indonesian consumers will buy the cheap cars because they prefer existing cars. As a result, the huge investments will be for nothing. “Those are some of the dilemmas faced by car producers,” said Gunadi.

Johnny and Gunadi also reminded that road infrastructure is also a factor that must be considered before the government implements the cheapcar production plan. With limited road infrastructure, cheap cars have the potential to create traffic jams in cities. “Traffic law enforcement must also be further strengthened,” they said.

In Jongkie’s eye, the cheapcar concept is good for Indonesia although difficult to achieve. To make it a reality, car principals and brand holder sole agents must reduce their profit margins. The government must also be willing to reduce several tax rates, such as import duties (currently 55.5 percent, depending on car price), value-added taxes, and luxury goods sale taxes (10-200 percent, depending on engine capacity), as well as vegetable fuel taxes. “Those tax components contribute 40-50 percent to the price of cars,” he said. The government and Bank Indonesia, he said, must also urge banks to lower interest rates so that cheap cars can be purchased by consumers.

It turns out that the conditions and incentives requested by the principals have been anticipated by the government. According to Budi, several incentive options will be proposed to encourage car producers to produce cheap cars. For operational incentives, he said, the government is ready to provide incentives by lowering luxury goods sale taxes and value-added taxes.

The taxes will later be adjusted to engine capacity, car price, and kilometer per liter consumption. The government is also ready to provide incentives such as tax holidays to automotive producers who want to build new plants. Not only that, said Budi, the government would also give incentives to automotive component raw materials through import duties borne by the state. “The rest will be incentives on technology,” he said.

With the various incentives, Budi is optimistic that at the latest in 2014 Indonesia will have become the base for cheap car production, not just in the Asian region but also in the world. The cheap cars will in the future be exported to or marketed in other countries such as in Asia, Middle East, Africa, and Latin America. “Today we can even export cars to 40 countries,” he said.

-- Padjar Iswara, Iqbal Muhtarom

Thu, 23 Apr 2009
From: JakChat
Comment by KuKuKaChu
Originally Posted By: Tempo
Unfortunately, local investors are not yet interested in producing such cheap cars. “We’ve approached themIt seems they’re concerned about the risks, because car manufacturing requires large investments,” said Budi.

why aren't they interested? i can immediately think of two strong reasons:

1. gengsi. most indonesians own a car for reasons of status, not necessity.

2. old tech. the future is electric.

Thu, 23 Apr 2009
From: JakChat
Comment by kenyeung
And Tempo editorializes that putting more cars on the streets would be a dumb idea.

Cheap Cars For What?
Tempo Magazine No. 34/IX | April 21-27, 2009

Given the current state of the infrastructure, cheap cars are the last thing we need. Public transport is more important.

BEFORE it reaches the implementation stage, the plan to produce cheap cars should be abandoned. In a nation with annual car sales of only 500,000, without satisfactory improvements to the supporting infrastructure this program with be nothing more than a manifestation of “big ambitions, limited resources”.

Just look at the streets around us, especially in cities in Java. It is rare to see a pleasing sight. Traffic congestion is everyday fare. Different types of vehicles - motorbikes, private cars, minibuses, buses - crowd the streets fighting for the chance to move and even depriving pedestrians of the right to use sidewalks. No one wants to be there, but none can avoid it.

It is clear from this situation what needs to be done: build more roads, or reduce the number of vehicles. Neither of these would be easy, but they seem to be the most sensible options.

The capacity to build new roads, no matter how much effort is put into it, will eventually run up against a brick wall. In Jakarta, for example, data from the Transportation Department shows that roads are expanding only by around 0.01 percent per year, while over the last five years the number of cars and motorbikes has increased by 9.5 percent. After building underpasses and flyovers, of which there are now many - some of no use - will the administration now build underpasses under underpasses or flyovers over flyovers? The most realistic option is to reduce the number of vehicles.

The cheap car, the concept now being developed by the Transportation Department, is clearly not in line with this solution. The program seeks to push motorcyclists into driving cars and absorbing unemployment. But if this is achieved, it would only trigger more demand for cars.

This situation will create a vicious circle of traffic congestion. The demand for cars will never be reduced because there is no convenient alternative other than private vehicles. The more cars are sold, the more the congestion on the roads. Although there will be environmentally friendly technologies, the increase in fuel consumption (because they only cost around Rp50 million, there will be no switch to electric power) will remain unavoidable.

Rather than expend time and effort on studying this car concept, the government should look for ways to create a mass transportation system that is convenient, timely and integrated, especially in the major cities. In Jakarta, this type of transportation - which integrates railroads, buses and other suitable means - is a must.

It is indeed a matter of urgency to put in place a mass transportation system, in order to reduce the use of private vehicles, which make up 95 percent of all vehicles.

A cheap car may sound wonderful, at least in terms of public relations, which could raise our image, much like India, which sells the Nano car for around Rp25 million. It may be tempting from a business viewpoint. But the opposite could happen. Whatever the case, the plan is still useless. Cheap cars on the streets will only hasten the disastrous situation predicted for Jakarta in five years’ time: total gridlock.

Thu, 23 Apr 2009
From: JakChat
Comment by fred
While I an see the problems of congestion and so on some would find it handy.
Out here, and I'm sure there, we see loads of bikes with 4 or 5 people including babies on them. A small, cheap motor would be really handy for so many and make thing a hell of a lot safer.
The price may bar too much of the customer base from bting as may the need for a SIM A instead of the SIM C used for motorbikes.
Perhaps a 3 wheel bubble car/Reliant Robin jobby would be a better bet. Electric would be good but too expensive and limited at the moment.
I'm waiting for those 3 wheel cargo style bike manufacturers to produce a people version. I'll bet it would sell like hot cakes at the right price.

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