Daihatsu, Isuzu rethinking their RI production ventures

Daihatsu, Isuzu rethinking their RI production ventures

TOKYO (Bloomberg): Japanese automakers Daihatsu Motor Co and Isuzu Motor Co are reconsidering the future of their production ventures in Indonesia at the request of local partners, both companies said yesterday.

Indonesia's Astra Group asked Daihatsu to increase its stake in a joint engine-making venture and Isuzu to rethink their entire cooperative framework.

Their Indonesian joint operations are struggling because of this year's 46 percent decline in the rupiah against the yen, which has inflated the price of cars made mostly with imported parts.

Daihatsu may raise its 20 percent stake in PT Astra Daihatsu Motor, which makes engine parts for local automakers, said Tomoya Kanamaru, a manager at Daihatsu's public relations department.

Isuzu will probably discuss its equity stake in PT Pantja Motor and PT Mesin Isuzu Indonesia, though it sees "little merit" in increasing it now, said Isuzu spoksewoman Yoshiko Shibata.

Spokespeople from the two Japanese automakers said Astra initiated the talks in response to extreme economic dislocation which has cast uncertainty over earnings prospects of their joint operations.

The question of how much Daihatsu might expand its investment in Astra Daihatsu, 75 percent owned by Astra, is still under consideration, said Kanamaru.

"We don't even have a production schedule for Indonesia this year," he said. "Still, it's an important market we want to keep a presence in, so we're studying the proposal."

Daihatsu assembled 36,000 cars in Indonesia last year, 15 percent of its overseas production of 230,000 and 4 percent of its total output of 780,000.

In January Daihatsu President Iichi Singu said the company was considering shutting down its Asian factories because of the region's worsening economic crisis.

Isuzu owns 12.5 percent in PT Pantja Motor and 36.7 percent in PT Mesin Isuzu Indonesia. The company assembled 50,000 sport utility and other vehicles locally last year, 15 percent of its overseas production of 315,000 and 9 percent of its total output of 547,000.

"They came and asked us to reevaluate our whole business scheme in light of the economic crisis," said Isuzu's Shibata.

"That process will likely involve reconsidering our equity stake in two joint ventures, but it's hard to see any merit in increasing our ownership for the time being."

Both automakers expect to feel Asia's pain when they post earnings this year. Daihatsu is forecasting an 18 percent decline in group profit to 6.8 billion yen, while Isuzu is projecting a 90 percent drop in parent-company profit to 1 billion yen.

The two Japanese automakers and their Indonesian partners "want to protect their investment and ride out the storm," said Jeremy Tonkin, an auto analyst at Towa Securities Research Institute Co.

Daihatsu and Isuzu may also see Indonesia's current disarray as an opportunity to invest, he said.

"You can't really say Indonesia will get back on its feet next year or the year after, but these companies must be taking a long-term view. If you're going to raise your equity stake you might as well do it now."