Indomobil to produce cheap cars

Indomobil to produce cheap cars

JAKARTA (JP): Indomobil, the country's second largest car assembler after Astra International, is to launch its first low- priced sedans, with 60 percent local content, in four or five years' time.

Indomobil president Soebronto Laras said here on Thursday, "We are currently thinking of one model with 60 percent local parts. In four or five years the car will come onto the market at a price lower than Rp 20 million (US$8,567)."

"To do it viably we will have to produce at least 50,000 sedans a year. The car won't be worth making if the production rate is just 4,000 or 5,000 a year," Soebronto said.

Indomobil currently produces vehicles with Japanese and Swedish brands -- Suzuki, Mazda, Nissan and Volvo -- with domestic components of up to 20 percent.

"To make the planned model, there will be no substantial investment needed because we can use our existing assembly facilities," Soebronto said at the Danamon Tennis Center in Kemayoran, North Jakarta. "But, of course, there will be modification costs, which I estimate at Rp 100 billion ($42,835.7)."

This move is an apparent counter to PT Timor Putra Nasional, whose sedans with 20 percent local content in its first year of production will be available on the market at about Rp 35 million (US$14,992) in September this year. This is half the price of Japanese makes of the same class -- with engines of 1,600cc.

Legal basis

Surprisingly, Soebronto said that the legal basis for Indomobil producing cheap sedans would be the May 23, 1993 deregulation package, not Presidential Instruction No. 2/1996, which was announced on Feb. 28.

The February ruling stipulates that the government will lift import duties on components and luxury sales tax on cars which are manufactured by a 100-percent domestic company with an Indonesian brand name and local technology, engineering and designs.

Import duties on components and luxury sales tax on cars sold on the domestic market generally account for about 60 percent of the sale prices.

The day the decree was announced, the government also declared PT Timor Putra Nasional as the only company for the time being which already met the requirements of the new ruling.

The May 1993 deregulation package, on the other hand, stipulates reduction of import duties on components used for the assembly of vehicles whose volume of domestically-made components is sufficiently high.

"Thus, for sedans with 60 percent local contents, the duty on imported components will be 20 percent. This gives enough room for us to stay competitive," said Soebronto.

"That's why," he added, "our immediate reaction to the package was applying to the government for a permission to produce cheap sedans with a high local content. We sent the application on Aug. 17 last year," he said. "However, we have yet to receive a reply from the government, which, all of a sudden, announced the February presidential instruction."

Soebronto added that "in fact, when it comes to being ready to produce cars with a high percentage of local contents, I can say with certainty that it is Indomobil and Astra who are the most prepared."

"Astra's total investment of around Rp 1.5 trillion and ours of Rp 800 billion, plus so many years of experience in the indus try, should explain why we are the best prepared," Soebronto said.

Newly established Timor Putra, on the other hand, said it would invest $260 million in its Timor sedan project.

Timor cars will be a clear threat to the Japanese car manufacturers who have their cars assembled and marketed in Indonesia. But Soebronto, who met with executives of Indomobil's principal companies in Japan last week, has advised them not to file any protests against the Indonesian government over its new policy.

"Yes, they questioned the policy and wanted to protest. But I told them not to do so because such a protest would be useless. Moreover, every country has its own policies and we have to respect them," Soebronto said. (arf)