Car Industry deregulated<\/p>\n
The automobile industry predictably reacted with deep
\ndisappointment to the sweeping changes made last week by the
\ngovernment in the car tax and import tariff structures. Auto
\nassemblers, which have invested a great deal in the industry to
\nfulfill the local content requirement to qualify for tax and
\nimport duty reductions, obviously became frustrated after the
\nabolition of the incentives, which were introduced only in 1993.
\nThe slash in import tariffs on completely built (CB) cars rubbed
\nsalt into local assemblers' wounds.<\/p>\n
At a time when the domestic car market has now been reduced to
\nonly about 60,000 units a year, the sharp cut in import tariffs
\non CB cars from a range of 200 percent to 300 percent to 65
\npercent to 80 percent could become a serious threat to local
\nassemblers. They could be forgiven for blaming what they
\ncriticize as a flip-flop policy on the part of the government.
\nAfter all, they have ploughed so big an investment into the
\nindustry following the government's policy of developing a viable
\ndomestic automobile manufacture.<\/p>\n
Nonetheless, the market-opening measure would at best have a
\nminimal impact on the industry. In a market that sells only about
\n60,000 cars but is crowded by more than a dozen makes with a
\nlarge variety of types and models, neither generous tax
\nincentives nor sharp cuts in import tariffs would help
\nreinvigorate sales at least until the economy recovers.<\/p>\n
The auto industry, like real estate, is highly sensitive to
\neconomic conditions and bank interest rates. The car market
\nusually becomes the first victim of an economic slowdown and a
\ntough monetary policy. Hence, when the financial meltdown plunged
\nthe economy into a 14-percent contraction and the monetary
\ncondition forced interest rates to as high as 70 percent last
\nyear, the car market collapsed, selling only about 60,000 units
\ncompared to 390,000 in 1997.<\/p>\n
Most optimists predict that this condition will begin to
\nimprove significantly only in 2001 as the economy is foreseen to
\ncontract by 1 or 2 percent this year and to pick up only slightly
\nnext year. Worse still, the restructuring of the banking
\nindustry, already far behind schedule because the damages
\nsuffered by most major banks were much worse than previously
\nassessed, will likely resume lending only next year even though
\ninterest rates are projected to fall as low as 17 percent later
\nthis year.<\/p>\n
One then may wonder what is the point of introducing the new
\npolicy when its impact will mostly be neutral on the depressed
\ncar industry within one or two years at least. The new policy
\nactually was launched not on the government's own initiative. The
\nmeasure was forced by the Geneva-based World Trade Organization
\n(WTO) following the judgment last July of the WTO Dispute
\nSettlement Board which found the government's 1996 policy of the
\nnational car program as utterly discriminative and in gross
\nviolation of WTO rules. The judgment, awarded on the basis of
\ncomplaints filed by Japan, the United States and European Union
\nrequired Indonesia to stop its so-called national car program
\nwhich was implemented by a company controlled by former president
\nSoeharto's youngest son, Hutomo Mandala Putra, using the Timor
\nbrand name and South Korean Kia Motor Company's technology. Timor
\nsedans, though manufactured entirely in Korea, were exempted from
\nimport duty and taxes.<\/p>\n
But as punishing as the measure seems to be, this is the kind
\nof market policy the country has to take to gear up the
\nautomobile industry to face keener international competition
\nwithin the ASEAN Free Trade Area three years from now and under
\nthe WTO-governed global market. Protection under high tariff
\nbarriers, besides being detrimental to consumers, will never
\nenable the country to build an efficient automobile industry
\nwhere economies of scale are very crucial. The fact that more
\nthan a dozen car makes are still assembled locally even though
\nthe market is very tiny shows how distorted has been the auto
\nindustrial policy thus far.<\/p>\n
The abolition of tax and tariff incentives for locally
\nassembled cars and the liberalization of CB car imports may look
\npainful now. But at the end of the day, assemblers who have
\ninvested heavily in the manufacture of components and development
\nof nation-wide service networks, will surely arise as the most
\ncompetitive. Local assemblies using local components are
\nobviously much more efficient and reliable than those that rely
\non imported kits. Buyers prefer cars with reliable after-sales
\nservices to imported CB vehicles which do not have an extensive
\nservice network.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/car-industry-deregulated-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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