General Motors freezes investment in Indonesia

By Russell Williamson

General Motors Corp has frozen its investment in Indonesia for an indefinite period in response to confusion surrounding the government's national car policy.

GM, which owns 60 per cent of PT General Motors Buana Indonesia, recently invested $US110 million in a major upgrade of its assembly facility at Bekasi, which produces the Opel Optima and Opel Blazer.

However earlier this month, the president of GM's Asian and Pacific operations, Donald Sullivan, said the company would keep its level of investment frozen until it got a clearer indication of the direction of Indonesia's car policy.

"We've been very disappointed about the recent developments in the national car, because it creates an unlevel playing field," Donald said.

Sullivan was referring to the tax concessions given to PT Timor Putra Nasional in February to build a "national car" using technology from South Korean car-maker, Kia Motor Corp.

These concessions for Timor were further expanded earlier this month with the announcement that Timor had been given permission to import 45,000 fully built up cars per year from Kia's plant in South Korea without paying any import or luxury sales taxes.

Sullivan was speaking at a press conference in Bangkok to announce GM's US$750 million investment for a new regional manufacturing plant in Thailand.

The new plant is to have a production capacity of 100,000 units per year and is likely to produce the next generation of Astras - as the Optima is known outside Indonesia - for both domestic and export markets.

The plant is expected to start production in early 1999 with up to 80 per cent of its output for export.

Export production would include completely knocked down and completely built up products which would be destined for major markets in the region including Indonesia, Australia and Japan.

"The investment of $US750 million to establish this regional manufacturing facility in Asia is a clear indication of our determination to achieve our long-term objective of a 10 per cent market share in the region," Donald said.

"The long history of economic stability and growth in Thailand over the past two decades has created an environment that has attracted much investment, especially in the auto industry, and I am confident that GM can make a significant contribution to the further development of Thailand's auto industry within the region," he said.

However, despite the freeze on investment, PT General Motors Buana Indonesia will increase its production of the sports utility Opel Blazer within the next couple of months.

According to a GM spokesman, the company will add a second shift for Blazer production, which will increase its output this year to between 8000 and 8500 units.

"That part of it is still going ahead because the sports utility segment, which is by far the stronger segment of the Indonesian car market is doing well," the spokesman said.

"The Blazer is selling well but it is more the passenger car side of the national car program that concerns us.

"There are conflicting messages and there is no stability at the moment and we are waiting for some stability.

"It tends to make you think twice before you want to spend any more money until you know what the rules are going to be.

"We made certain assumptions and certain investments on certain ground rules that appear to have changed," he said.