GM freezes investment in Indonesia

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)