GM freezes investment in Indonesia

JAKARTA (JP): United States-based auto manufacturer General Motors Corp (GM) said yesterday it has suspended additional investment in Indonesia because of what it describes as the discriminatory privileges Jakarta has granted its national car project.

Donald Sullivan, chief of GM's Asian and Pacific Operations, was reported by Reuters as saying in Bangkok that his firm was disappointed with Indonesia's decision to discriminate against foreign car makers operating locally in favor of PT Timor Putra, a company controlled by a son of President Soeharto's.

"I must say we have been very disappointed by recent developments in the national car (program) because it truly creates an unlevel playing field," Sullivan said.

He made the comments at a news conference to announce a US$750 million car plant project in Thailand.

GM has invested about $110 million in its Indonesian assembly plant and related facilities which started production in 1994, mainly producing Opel Vectra and Astra sedans.

GM, which holds a 35 percent stake in Isuzu Motors, last year also sold 44,570 Isuzu commercial vehicles.

In Jakarta, an executive related to PT Timor Putra National -- the company that has been awarded the exclusive privilege to build a so-called national car -- said the production of "Timor" sedans would continue as planned.

Fritz H. Eman, the president of Timor Putra's assembly division, PT Udatin, told reporters yesterday that Timor Putra expects to capture 20 percent to 25 percent of the domestic automotive market by the end of its three-year preferential treatment.

"Our assembly facility in Surabaya, East Java, will start operating next March and Timor Putra's manufacturing facility in Cikampek, West Java, will be completed in September, 1997," said Fritz, who is also a member of the Supreme Advisory Council.

The Surabaya assembly facility will require an investment of $30 million to $50 million, which will be used to upgrade and renew an existing, but idle, plant. The facility is expected to assemble 36,000 to 100,000 cars a year.

The Cikampek manufacturing facility, to be established with an investment of $300 to $600 million, will be managed by Timor Putra's subsidiary, PT Kia Timor Motor.

Kia Timor Motor is 35 percent owned by Indauda -- Udatin's sister firm -- 35 percent by Timor Putra, and 30 percent by Kia Motors Corp. of South Korea.

Eman refused to answer questions about the project's financing. He only said that everything was wrapped up in an "internal arrangement".

Under the "national car program", Timor Putra is allowed to produce Kia's "Sephia" sedans -- to be renamed "Timor" for the local market -- with the help of a series of exceptional breaks, including exemption from import duties and luxury taxes, provided that the car's local components make up 20 percent by the end of the first year, 40 percent by the end of the second year, and 60 percent by the end of the third year.

In a later development, the government decided to allow Timor Putra, controlled by President Soeharto's youngest son Hutomo "Tommy" Mandala Putra, to import complete assembled units to Indonesia in its first year.

Critics

This was justified by explaining the company had not yet prepared its assembly plant in Indonesia. Thus, until June 1997, 45,000 Kia-manufactured "Sephia/Timor" sedans will enter Indonesia.

Japan, the European Commission and the United States have all criticized the "national car program" and accused it of violating the rules of the World Trade Organization.

Sullivan said there were a lot of "uncertainties" about the rules of the program.

"We have put any future investment on hold in that country, because we want to get a better understanding of where the Indonesian government is heading on their policy," he was quoted by Reuters as saying.

"It is my personal hope that Indonesia will look for a solution for its national car policy that will not create an unlevel playing field and not discourage our company and other companies in that country," Sullivan said.

In defense of Timor Putra, Fritz said yesterday that all the breaks for the "Timor" sedan were to guarantee the success of the "national car program".

"I understand the critics in the press and the automotive industry. But this program must be supported by a minimum production volume in order to be viable, which is about 50,000 to 100,000 units a year. With current automotive sales estimated at 400,000 units a year, there will be no space for more than one manufacturer," he said.

"It will be impossible to reach this volume without special facilities, considering that we have only three years to reach our target," said Fritz, who is said to be the person behind the scheme.

"That is why we must look for a way to make the program a success... After three years, we'll be ready to compete with existing manufacturers". (pwn)