Car sales not expected to reach target

JAKARTA (JP): The Association of Indonesian Automotive Industries estimates that auto sales will only reach about 380,000 this year, or about 12 percent below the initial target of 420,000 cars, due to the fall in demand in the last three months.

The association's chairman, Herman Z. Latief, said yesterday that the currency crisis and the government's credit crunch policy to shore up the rupiah had caused a sharp drop in car sales.

"I believe that auto sales this year will not reach the target of 420,000 cars, but only 380,000 cars," Herman said.

He admitted that car sales had fallen sharply the last two months due to the tight monetary policy imposed by the government since early August.

The tight monetary policy, which had caused a sharp increase in interest rates, made car loans expensive, he said.

Car sales dropped by 20 percent to 34,000 in September, from 43,000 in August, due to the expensive loans, he said.

"I estimate that sales will fall further to below 30,000 cars in October and to below 20,000 in November," he said, adding that car sales were below the monthly average of 40,000 between January and August.

Even though car sales had fallen sharply this year, Herman said it might become worse next year when the full impact of the financial crisis began to hit the industry.

"I predict that next year's sales will only be about 50 percent (of sales this year)," he said.

He said auto sales in the first three quarters of this year only reached 318,000 cars.

Last year, sales reached 330,000 during the same period.

He said the association's initial sales target was 500,000 cars per year before 2000, and one million in 2010.

"But I think we'll need a few more years to reach the target," he said.

He said motorcycle companies also faced declining sales, but it was not as low as car sales.

He said the association had previously set a sales target of at least two million motorcycles this year, but during the monetary crisis, sales were only estimated to reach about 1.3 million.

Herman, also president of the Kramayudha Tiga Berlian Group -- a large automaker -- said the credit crunch, the bleak outlook of most businesses and the steep increase in prices of imported goods were driving the car industry toward bankruptcy.

He said automakers had to raise prices due to the price increase of imported spare parts, which boosted production costs by at least 30 percent.

"We'll have to increase our prices by 5 percent next month. We have to do that otherwise we'll go bankrupt," he said.

He said recovery in the national automotive industry was expected with the recovery of the economy, but growth in the sector would be slow.

"I don't believe that after a recovery, the automotive market will grow as fast as it has in the past decade. But if we can recover in two or three years, it will be very good," he said.

He said the fall in sales might force automakers to cut salaries of their workers or even lay off some.

"But a layoff is our last choice, we will find other ways to solve the problems, such as efficiency in other sectors," he said.

He estimated that at least 300,000 people work in the car industry.

He hoped that financial assistance now being prepared by the International Monetary Fund (IMF) would be able to solve the country's monetary problem and could gradually revitalize overall economic activities, including in the automotive sector.

Separately, the chairman of the Indonesian Automotive Components Association, A. Safiun, said the increase in spare- part prices had increased by 54 percent due to the sharp depreciation of the rupiah.

He said the impact of the currency turmoil was strong due to the industry's heavy dependence on imported materials and components and on credit sales.

Herman said production costs at automotive companies would increase by 30 percent, but added that automakers would not hike prices that much.

He said car prices, which last month rose by an average of 3 percent, would further increase by 5 percent next month. (08)