Era of cheap cars

Putting the controversy aside for the moment, the government's national car policy may have ushered in a new era of cheap cars in Indonesia. Local car manufacturers may question the fairness of a policy that favors a complete newcomer, and Japan and the United States may make good their threats to take Indonesia to the World Trade Organization, but it now appears that Indonesian consumers will be the biggest winners from the policy.

When the government announced the new national car policy in February, scant attention was given to how it would affect consumers. The decision to grant a series of tax breaks to businessman Hutomo (Tommy) Mandala Putra was intended to nurture a truly home-grown car industry. The controversy that ensued focused on the interests of the various players in the industry, including their Japanese, Korean and American principals.

But now that the first of two models claiming to be the first national cars have been launched, the benefits for consumers have become apparent. First, Tommy's Timor, a 1,500 cc sedan, entered the market on July 8, priced at Rp 35.75 million ($15,500). Then, on Wednesday, Tommy's older brother Bambang Trihatmodjo launched the Cakra, another 1,500 cc sedan, selling for Rp 41.7 million ($18,100). These cars are not cheap by international standards, but they are real bargains for Indonesians who are accustomed to paying double, triple and sometimes even quadruple what Japanese, Americans and Europeans have been paying for sedan cars all these years.

The Timor and the Cakra are essentially imported Korean cars although the producers have promised to step up the local content gradually to live up to their claim to be "national cars".

There is no secret about Tommy's pricing, given that it enjoys such useful tax breaks. But Bambang's ability to sell his car at just slightly over Rp 40 million without those privileges came as a major surprise. Some people may put it down to business strategy, but the important point is that these two models have kicked other automotive players in the trunk. These manufacturers, who for so long have controlled the Indonesian market by assembling Japanese cars, are now racing to churn out new models at equally competitive prices.

The overall impact of the national car policy for consumers has been positive. We hope the reduction in prices does not come at the expense of quality, as has so often happened in the past. The task of the government is to ensure continued healthy competition among car-makers, because this is one way of ensuring that not only prices, but also quality, are competitive.

We do not believe that the era of cheap cars will necessarily lead to a big surge in sales. Certainly, there will be some of that in the beginning, but the market will eventually settle down and various factors will continue to limit the growth of car sales in Indonesia. In Jakarta, which remains the largest market for car manufacturers in Indonesia, road shortage, worsening traffic congestion, lack of parking facilities, the prospect of stringent emission controls and the plan to build a new mass rapid transit system will combine to limit sales growth in spite of price cuts.

Already we are seeing an increasing shift in consumers' preference away from passenger vans, which have long dominated the Indonesian market, towards sedans, while overall sales has remained more or less stagnant.

With the advent of cheap cars, consumers in Indonesia will have a wider range of selection to choose from at lower prices. This will free up more of their disposable income to spend on other things, and this can only be good for consumers and the rest of the economy.