Audi seeking regional base to close gap with competitors

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.