By Sudibyo M. Wiradji Contributor Jakarta

Car prices remain high despite AFTA accord

Under the ASEAN Free Trade Area (AFTA) agreement, Indonesia and the association's other member countries are required to reduce import tariffs to between zero to five percent beginning this year.

Cars produced in five of the association's founding countries, Indonesia, Singapore, Thailand, the Philippines and Brunei can benefit from the import tariff reduction as long as their ASEAN or local content (parts) is at least 40 percent.

Unlike the five other nations, Malaysia, also a founding member, pulled out of the accord until 2005 to protect its national carmaker Proton. New ASEAN member countries Vietnam, Laos, Cambodia, and Myanmar are allowed to delay the opening of their market until between 2006 and 2010.

The trade accord should theoretically reduce car prices in the association's five member countries which at present impose tariffs of up to 40 percent on car imports.

In Indonesia, for example, the import tariff of CBU (completely built-up) cars ranges between 30 percent and 40 percent.

Several vehicles such as Chrysler (Cherokee), Opel Zafira, Toyota Soluna, Toyota Altis and Honda City have met the 40 percent ASEAN content requirement. The prices of the vehicles should be lower than the current level, when the trade accord is effectively implemented.

Industrial sources said that producers could not immediately reduce the prices as the AFTA agreement is only on paper. "How could prices be reduced if the government alone still maintains the old import tariffs," an industry source said.

Meanwhile, Japan's top automakers, including Honda, Toyota Motor Corp., and Nissan Motor Co. have made a quick response to the AFTA by laying plans for the start of partial free trade in ASEAN, pumping in fresh investment and rolling out a fresh regional strategy.

For example, Honda has reportedly designated Indonesia as the regional production center for its Stream MPV (Multi Purpose vans). The local sales with an output at the rate of 7,000-8,000 units would be exported to Thailand and other ASEAN markets.

To take the advantage of AFTA, General Motors is expanding the assembly facilities of its popular cars such as Zafira, Opel and Subaru in the region.

GM Indonesia's marketing Manager Taufik S. Arief said that raising the ASEAN component is needed to ensure that the company would be able to take advantage of the larger market.

"ASEAN will become a single when AFTA is fully implemented. It will become a big market," he said.

ASEAN, comprising 10 countries, has a huge market potential with 510 million people. China and Taiwan are two heavy competitors in this regards as well.

The Association of Indonesian Automotive Industry's (Gaikindo) chairman Bambang Trisula said that the tighter competition would "force" local car makers to boost their product quality.

"Automotive products from other countries (ASEAN) may flood Indonesia and, positively, this will spur the working efficiency and professionalism of local automotive manufacturers," he said.

Taufik, however, said that if Indonesia is not ready for AFTA, then the consumers (public) may buy products offered by other ASEAN countries.

"For the consumers, it is not important whether the cars are produced in Indonesia or other ASEAN countries such as Thailand, as long as it is cheaper and as far as the quality, reliability and after-purchase service is fulfilled," he said.

The automobile market in Indonesia is dominated by commercial cars, mainly by 'minivan types, such as Toyota Kijang, Isuzu Panther, Daihatsu Espass, and Daihatsu Taruna. Based on Gaikindo's data, car sales in 2001 reached 299,629 units, compared to 300,964 units in 2000. Of those, 88.5 percent were non-sedan types such as pick ups, minivans, minibuses, jeeps, multipurpose vehicles (MPV), sport utility vehicles (SUV), trucks and buses.

Toyota ranked first in the sale of passenger cars, with 12,065 sold followed by Honda with 6,656 units, Suzuki, with 4,558 units, Hyundai with 2,960 units, BMW with 2,274 units, Timor with 2,102 units, Mercedes Benz with 1,694, Mitsubishi with 1,338 units, Peugeot with 350 units, Audi with 223 units, Volvo with 132 units, KIA with 131 units, Jaguar with 110 units, Nissan with 91 units, Ford with 54 units, Volkswagen with 27 units, Mazda with 2 units, and Ssangyong with 1 unit.

Entering the Indonesian car market are also three new Volkswagen (VW) passenger models (completely built-up/CBU) including the 1.6 and 1.7 liter Golf. 1.8 and 2.8 Passat and the new 2.0 Beetle. After being absent for about 20 years, VW has returned to Indonesia to satisfy the demand from car enthusiasts.

PT Car and Cars Indonesia (CCI), which is a sister company of Singapore-based Car and Cars, handles the marketing and provides the after sales service for VW cars in Indonesia.

Gaikindo said that the 2002 domestic car sales target would be revised to around 200,000 units, compared to the previous target of 340,000 units.

The revision was made amid persistent uncertainties in the domestic political condition. The non-sedan cars are predicted to continue to dominate total vehicle sales in 2002 like they did in 2001 and 2000.