Audi seeking regional base to close gap with competitors

Novan Iman Santosa, The Jakarta Post, Singapore

Implementation of the ASEAN Free Trade Area (AFTA) has enticed more and more carmakers, from the low end to the premium sector alike, to establish production centers here, taking advantage of low tariffs if a car is built using local components.

Recently, German carmaker Audi AG has announced that it was looking for a suitable production base for the Southeast Asia region and would make the decision by the beginning of next year. It named three countries as candidates: Indonesia, Malaysia and Thailand.

All Audi vehicles are delivered in completely-built-up (CBU) form, which commands high import duties.

On the other hand, two major premium German carmakers, BMW and Mercedes Benz, have established their local assembly plants here, allowing more affordable luxury for customers.

BMW, for example, assembles here most of the BMW 3- and BMW 5- Series except the BMW 330i, which is assembled in Thailand. Indonesia, in return, exports its BMW 530i to Thailand.

The Mercedes C-Class is also assembled here.

"At present, we have an expert team traveling a lot, having different talks with different people.

"We are confident that we will have the decision in the coming months on where to produce, with which partner and in what constellation, but it is too early to officially announce anything," said Audi AG Board member for sales and marketing Ralph Weyler.

Weyler was speaking to a number of journalists from the region, including Indonesia, Malaysia, Singapore and South Korea, during his stopover in Singapore on Oct. 7.

Thailand, however, could be the likely winner as it has better infrastructure and larger carmaker presence than Indonesia. However, Indonesia may have the edge on Malaysia as the latter has still refused to lower import tariffs for automotive in a move apparently to protect its own car industry.

Once the decision is made, it would take another year before the first car is delivered. Audi plans to concentrate on making the Audi A4 and Audi A6, Audi's "bread and butter".

"It is important for Audi to be competitive, not only in product quality but also price wise, in order to compete with other premium brands.

"Import taxes and other duties applied to Audi cars are putting us in an uncomfortable price position. We could overcome this kind of situation if we produce locally in the ASEAN area," said Weyler.

He said the price of Audi cars could be reduced by up to 50 percent, allowing more sales.

In Indonesia, Audi is handled by PT Garuda Mataram Motor which manages to sell 100 to 150 cars a year.

"The number will increase once we have set up a production base under AFTA, which would allow us to have a more competitive price," said Weyler.

Audi needs 40 percent local content to take advantage of the AFTA scheme, which allows a low import duty of 5 percent.

Weyler said Audi would definitely source engines from Germany, although other components could be procured locally.

"We will provide the tires, wheels, audio equipment and probably the seats. It depends on the supply side as well," he said.

Audi managed to sell 122 units as of the third quarter of this year, according to data from the Association of Indonesian Automotive Manufacturers (Gaikindo).

Meanwhile, BMW has sold a hefty 1,393 units and Mercedes Benz 1,695 units. The Mercedes data figure, however, also includes sales of commercial vehicles.