Domestic prices remain high despite AFTA agreement

Domestic prices remain high despite AFTA agreement

By Sudibyo M. Wiradji, Contributor, Jakarta

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.