Rupiah woes hit DaimlerChrysler profit<\/p>\n
Phelim Kyne
\nDow Jones\/Jakarta<\/p>\n
Indonesia's weakening rupiah will likely slash DaimlerChrysler
\nAG's Indonesian unit's projected profit growth by at least 10
\npercent in 2005 and prompt price hikes to cope with rising
\nmaterial costs, a senior company executive said recently.<\/p>\n
DaimlerChrysler's Indonesian manufacturing facilities produce
\nboth luxury Mercedes-Benz models as well as commercial vehicles,
\nincluding buses.<\/p>\n
The firm's projected profit shrinkage woes reflect the
\ndomestic corporate pain inflicted by a surge of around 11 percent
\nin the U.S. dollar against the rupiah since January.<\/p>\n
The rupiah's tumble has raised costs for foreign manufacturers
\nincluding DaimlerChrysler whose assembly operations hinge on
\nimported parts and components. Looming interest rates increases
\nto help give the rupiah traction against the U.S. dollar threaten
\nto chill consumer sentiment that will trim projected sales
\ngrowth.<\/p>\n
"In the first five months (of 2005), the market was strong,
\ndemand was quite high, banks opened their minds a little bit for
\nconsumer credit and the rupiah was very stable," PT
\nDaimlerChrysler Indonesia President Friedel Engisch told Dow
\nJones Newswires.<\/p>\n
"Now we have the devaluation of the rupiah and our material
\ncosts are increasing...(so) as far as profit is concerned it will
\nsurely be lower than expected, surely more than 10% lower," he
\nsaid.<\/p>\n
Engisch declined to elaborate on profit projections for
\nDaimlerChrysler's Indonesia operations, but said that the firm
\nwill likely have to raise prices by up to 7 percent next year to
\ncope with soaring costs.<\/p>\n
The rupiah's weakness has defied central bank and government
\nsupport efforts and saw the greenback rise as high as Rp 10,475
\non Friday, its highest level since Jan. 2, 2002, before closing
\nat Rp10,400. The rupiah traded at Rp 10,865 against the dollar on
\nMonday.<\/p>\n
DaimlerChrysler's future investment in its Indonesia-based
\nmanufacturing operations is in serious doubt due to the impact of
\nthe government's move in March to slash imported bus and bus part
\ntariffs, Engisch said.<\/p>\n
Indonesia scrapped import duties of up to 15 percent on five
\ntypes of spare bus parts including timing belts and engine
\nblocks. Tariffs for both imported bus chassis and a total of
\n1,150 completely-built new buses have fallen to 5 percent from as
\nhigh as 40 percent.<\/p>\n
The tariff cuts aimed to cushion the impact of a March 1
\naverage 29 percent increase in fuel prices by limiting public
\ntransportation firms' maintenance costs so that bus fare hikes
\ndon't surpass 10 percent. The reductions reflect efforts to quell
\npublic opposition to the fuel price hikes which the government
\nsays are essential to trim budget-blowing fuel subsidies.<\/p>\n
Engisch said that the tariff cuts put DaimlerChrysler bus
\nproducts at a serious competitive disadvantage to a flood of
\nlower-priced imports from Japan-based competitors including
\nMitsubishi Motors Corp. and Hino Motors Ltd.<\/p>\n
"The first impact was we had to lay off nearly 200 people and
\nthe forecast for (investment) growth potential in the country is
\nsurely reduced as long as this (policy) exists," he said.<\/p>\n
However, Indonesia's Minister of Trade has downplayed the
\nimpact of the bus tariff cuts on domestic manufacturers by
\nemphasizing tariffs will return to previous levels at the end of
\n2005.<\/p>\n
But the tariff cut has reinforced concerns about the
\npredictability of Indonesia's investment climate and prompted
\nDaimlerChrysler to rethink its Southeast Asian production
\nexpansion plans.<\/p>\n
"Surprises like this surely impact on the quality of the
\nIndonesian location for investment...Investment plans for
\nproduction have surely been negatively affected by this
\ndecision," Engisch said.<\/p>\n
He said DaimlerChrysler will proceed with a 20 million euro
\ninvestment to upgrade the firm's retail networks in Indonesia
\nover the next three years.<\/p>\n
But DaimlerChrysler is looking to direct manufacturing
\ninvestment where profitability and the predictability of
\ngovernment policy go hand-in-hand, he indicated.<\/p>\n
The trade liberalization goals of the Association of Southeast
\nAsian Nations Free Trade Area, or AFTA, may help DaimlerChrysler
\nto shift its Indonesia-based production to a neighboring country,
\nEngish said.<\/p>\n
Under AFTA rules, vehicles made in ASEAN countries --
\nincluding models of Japanese, South Korean, European and U.S.
\ncars produced in ASEAN countries with a minimum 40 percent local
\ncontent -- will be subject to maximum import duties of no more
\nthan 5 percent by 2008.<\/p>\n
ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia,
\nMyanmar, the Philippines, Singapore, Thailand and Vietnam.<\/p>\n
"With AFTA, you can produce in each of the AFTA countries, so
\nsurely when it comes to further investment, you go to countries
\nwhere the impact by political surprises is much lower," Engisch
\nsaid, although he said that DaimlerChrysler hasn't currently got
\nany relocation plans.<\/p>\n
But he added: "From the legal point of view, it would be
\npossible to stop production here and to import all the vehicles
\nfrom another AFTA country."<\/p>",
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