Checked by bruce<\/p>\n
Auto industry needs govt to take front seat on economic road
\nOR
\nAutomakers look to govt to steer out of economic woes
\n
\n Progress is coming in fits and starts for the Indonesian
\nautomobile industry, still on the long road to recovery amid the
\ndepressed market resulting from the economic crisis that struck
\nin 1997.
\nWith concerns about market potential and import liberalization,
\nforeign automakers are bringing in more built-up vehicles to
\nestablish their brand names, inevitably at the expense of local
\nmanufacturing programs. And the 2003 start-up of the ASEAN Free
\nTrade Area (AFTA) provides a further threat to the local
\nindustry; major car producers such as Thailand and Malaysia that
\ncan achieve the minimum 40 percent content for their vehicles are
\nable to benefit from preferential tariffs (0-5 percent) to enter
\nthe Indonesian market.
\n Budi Setiadharma, president of PT Astra International,
\nIndonesia's largest automobile group that controls almost 50
\npercent of the domestic market, discusses the likely effects of
\nthe impending developments on the domestic market.<\/p>\n
In assessing the likely direction of Indonesia's automobile
\nindustry, we must first examine the trend within the industry
\nworldwide, where giant automakers in Europe, the United States
\nand Japan have merged or formed various kinds of tie-ups.
\n Some of the alliances include American General Motors Corp. with
\nIsuzu and Subaru in Japan, American Ford with Japan's Mazda,
\nDaimler Chrysler with Mitsubishi, as well as Renault with Nissan
\nMotor Co.
\nThe rationale behind the move is to improve competitiveness
\nthrough greater efficiency in an industry with high economies of
\nscale, notably for makes that are oriented to the volume market.
\nIndonesia, a country with more than 210 million people, beckons
\nas a potential market even though its actual market size is now
\nstill far below the pre-1997 crisis level of about 400,000 units.
\nIn fact, market demand is now only around 50 percent, about as
\nlarge as that in Thailand with a population only one-third the
\nsize of its ASEAN counterpart.
\nIf the current muddling-through growth level ( 3-4 percent)
\ncontinues, the domestic market will need another two years to
\nthree years to reach the pre-1997 crisis sales volume.
\nHowever, the import liberalization policy has also opened the
\ndomestic market to foreign cars. Now we have a choice of a far
\nbroader range of brand-names in a wide variety of types and
\nmodels, from luxury limousines to compact cars, all imported in
\nbuilt-up forms.
\nEven though locally assembled vehicles, notably multipurpose
\ncommercial vans as Toyota Kijang, Mitsubishi, Daihatsu and
\nSuzuki, still dominate the market, new brand names are making
\nsteady inroads, intensifying competition as more makes and models
\nvie for the relatively small market.
\nThere is another factor that will soon affect the development of
\nlocal car manufacturing programs.
\n AFTA is supposed to spur growth in ASEAN countries by making the
\nregion more attractive to investors, who will be able to use one
\nmember country as an export base to tap the markets in other
\nASEAN countries under preferential tariff arrangements (0-5
\npercent).
\nYet, it could pose a serious threat to Indonesia's car industry
\nif there is no credible, effective mechanism to verify the
\nminimum 40 percent ASEAN content that makes industrial products
\neligible for the preferential tariffs.
\nFor example, Thailand and Malaysia, where the automobile
\nindustries are much more developed than Indonesia thanks to the
\nwell-directed policies of their governments, could flood the
\nlocal market with their vehicles.
\nASEAN governments therefore should act immediately to set up
\nclear-cut procedures to determine what is meant by the minimum 40
\npercent ASEAN content and form a joint, independent mechanism for
\nits verification.
\nIf other ASEAN producers can bring in to Indonesia cars with less
\nthan the minimum content, thereby entitling the vehicles to the
\n0-5 percent tariffs, Indonesia's efforts to develop its own car
\nmanufacturing industry would be jeopardized.
\n For example, Astra's manufacturing program for the Kijang van,
\nthe most popular vehicle in the country, could be adversely
\naffected because, despite its already high local content, the
\nvehicle still depends partly on imported parts with an average
\ntariff of 7 percent.
\nHow could this van compete with rivals that can enter the country
\nwith such low import tariffs?
\n It would serve as a double blow to the domestic auto industry,
\nas unfair competition could discourage additional investments to
\nincrease its local content.
\nAFTA is supposed to make ASEAN countries more attractive to
\nforeign car manufacturers, and Indonesia, given its vast
\npotential market, should theoretically be the most attractive
\none.
\nBut the potential advantage could be nullified if the general
\ninvestment climate remains as inimical as it is now. Many
\nbusiness leaders of the Indonesian Chamber of Commerce and
\nIndustry (KADIN) have often cited the major barriers to
\ninvestment, ranging from legal uncertainty, smuggling,
\ninefficient tax and customs services and inflexible labor
\nregulations.
\nWhether Indonesia's car industry could benefit from AFTA will
\ndepend mainly on the government, and how well coordinated are its
\npolicies to attract investment. The government has declared 2003
\nas the Investment Year, but the question now is how committed are
\nall the ministries to that objective.
\nWithin ASEAN itself, Indonesia must compete keenly with Thailand
\nand Malaysia in attracting automobile investors, not to mention
\nChina, now a great magnet for foreign investments in almost all
\nsectors.
\nInvestors, notably carmakers, will certainly choose the country
\nthey consider as the most hospitable and receptive to their
\nneeds, with car manufacturing a long-term business requiring big
\ncapital and high economies of scale.
\nCar and motorcycle production also has multiplier impacts and is
\nactually a labor-intensive operation as it involves hundreds of
\nvendors (suppliers). It is precisely because of this specific
\ncharacteristic that the industry badly needs an efficient supply-
\nchain management; it would be better for a car-making company if
\nmost of its vendors operate in a cluster to achieve high
\nefficiency.
\nAstra's experiences in developing small and medium-scale vendors
\nshow the vital role of efficient parts production for the cost
\ncompetitiveness of its Kijang vans. This factor is similarly
\ncentral in the study Astra is making in preparing another factory
\nfor its Honda motorbikes outside Jakarta. It wants to ensure that
\nthe location of the new plant will allow for highly sufficient-
\nchain management for its parts.
\nApart from vendors, car or motorcycle manufacturing also
\ngenerates a large number of jobs through the extensive network of
\nworkshops that have to be developed to support after-sales
\nservice. A car or motorcycle manufacturer will never be
\nsuccessful without the web of reliable workshops.
\nSo pivotal are these workshops that Astra, for example, has
\nregularly provided free training to mechanics at more than 2,000
\nHonda motorcycle workshops around the country. Astra does not own
\nthese workshops but it wants to ensure reliable after-sales
\nservice to support its sales.
\nThe AFTA factor and competition from cost-cutting rivals have
\nforced foreign carmakers, notably those from Japan, to have more
\nparts made in ASEAN countries and China.
\nThailand, thanks to the full support of the government, has made
\nfast progress in developing automobile parts manufacturing. It
\nhas now become the fastest growing car manufacturing center in
\nASEAN for various car makes.
\nIndonesia, supported by its potential market, also could still
\nattract car and parts investors, especially because Japanese
\ncarmakers which have developed a sizeable market in the ASEAN
\nregion want to forge brand-to-brand complementation in their
\nproduction program.
\nThis means that car or parts investors will choose the locations
\nof their plants on the basis of the biggest comparative advantage
\noffered by a particular country.
\nToyota, for example, may choose Indonesia for the production of
\nparticular parts for export to other ASEAN countries. According
\nto the recent basic agreement Astra International signed with
\nToyota Motor Corp., Astra will concentrate on distribution while
\nthe Japanese company will focus on car manufacturing.
\nUnder the agreement, Toyota will hold 95 percent of the
\nmanufacturing entity and Astra in turn will control the
\ndistribution entity with 51 percent ownership.
\nAt first glance, the agreement could be seen as Astra's
\nwithdrawal from the industry, and such a notion is not entirely
\nwrong.
\nAnother perspective is the ultimate objective of a creating a
\nfull car manufacturing industry through attracting Toyota to
\ninvest in developing a global production, supply and export
\ncenter of multipurpose vehicles and their gasoline engines.
\nUnder the agreement, Toyota will invest at least US$380 million
\nin the country within three years, of which $180 million will be
\nploughed into vehicle manufacturing and $200 million into parts
\nproduction.
\nImagine the multiplier impact of the investment project. On top
\nof that, Astra's divestment of its Toyota assembling unit will
\nhelp it reduce its debt overburdens to a sustainable level to
\nmake it highly competitive, not only as a distributor to the
\ndomestic market but also as a major van and parts exporter to
\nother ASEAN countries and even to the rest of Asia.
\nIt's an ambitious plan, but much hinges on who is at the wheel,
\nso to speak. Ultimately, the final implementation and success of
\nthis major investment program, like investment projects in other
\nsectors, will still depend on the progress the government will
\nmake in improving the general investment climate.
\n__________________________ 30___________<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/checked-by-bruce-1447893297",
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