Higher local contents 'won't 'reduce' car prices'

JAKARTA (JP): Increasing the local content of locally assembled vehicles would not automatically result in lower sales prices and competitiveness, experts said at the opening of an auto expo here Saturday.

Automotive analyst Suhari Sargo said car prices depended largely on the total efficiency of automobile companies rather than on the reduction of import duties and luxury taxes.

But F. Soeseno, secretary-general of the Indonesian Automotive Industries Association, argued that supply and demand would help determine prices.

"We cannot guarantee lower prices for cars which have already achieved a certain local content level because we follow the forces of the supply-demand equation," Soeseno said.

Earlier this month, PT Citramobil Nasional, a unit of publicly listed PT Bimantara Citra, slashed its sedan prices by six percent because its cars higher local content brought about lower import tariffs.

As Bimantara cars contain more than 20 percent local content, the tariffs on the remaining imported components were reduced to 50 percent from 65 percent.

On top of import tariffs, cars are subject to a 35 percent luxury sales tax and 10 percent value added tax.

In the United States and Malaysia the government monitored closely prices of consumer products, including automobiles, to maintain price fairness, Suhari said.

"Whenever prices are abnormal, the government takes steps to force companies to bring prices back to a normal level," Suhari said.

He said the Indonesian government could demand financial statements from automotive firms to see whether their prices were normal or not.

"We expect automobile assemblers to cut their prices whenever the government grants them import duty or tax cuts," he said.

The director of the transportation industry section of the industry and trade ministry, Noergardjito, said the government would not intervene and would let market forces run normally.

But he said the government's national car policy had in some ways forced the lower car prices on the domestic market.

Under the policy, announced in February 1996, the government granted import duty and luxury tax exemptions to PT Timor Putra Nasional as the sole producer of a so-called national car, driving its cost down to only about 60 percent of the price of its domestic competitors.

Timor Putra -- controlled by President Soeharto's youngest son, Hutomo Mandala Putra -- is cooperating with Kia Motors Corp of South Korea to produce the national car. It currently imports the car fully assembled from South Korea as its production facilities are still being built.

Noergardjito said the national car policy was introduced to free the country's automotive industry from its dependency on foreign technology and to correct the continuing lop-sided trade imbalance in the sector.

Automotive imports were US$4.1 billion last year, up from $3.6 billion in 1995. But automotive exports were still less than $300 million, Noergardjito said.

Noergardjito officially opened the Indonesia Automotive '97 at the Jakarta Convention Center which will run until June 22. (rid)