Japan's car projects in Indonesia remain on hold

Japan's car projects in Indonesia remain on hold

TOKYO (Reuters): With Indonesia mired in political and economic turmoil, Japanese carmakers that have invested heavily there are halting plants and projects, worried that a recovery may prove increasingly elusive.

Big carmakers such as Nissan Motor Co and Mitsubishi Motors Corp said yesterday that automotive projects planned for Indonesia remained on hold and could be delayed further by political instability.

Even bigger worries loomed, analysts said, for Japanese companies that had already completed plants in Indonesia, only to slash production and then shut down entirely as economic crisis degenerated into political turmoil.

"If there is further turmoil, a recovery could be delayed," said a spokesman for Mitsubishi Motors, the top Japanese company in Indonesia's commercial vehicle market. "Right now it is impossible to tell how the situation will develop."

He said a plan to start producing Mitsubishi multipurpose vehicles in Indonesia this September remained on hold due to the economic and political situation.

A Nissan spokeswoman also said on Tuesday that plans for a joint company to build an 8.5 billion yen gasoline engine assembly plant in Indonesia had been suspended.

"We will watch developments in Indonesia before we decide what to do about the plan to build a factory there," she said.

The Indonesian government in December approved the formation of a joint company, although plans to set up the company in January and start construction of the plant in April were delayed due to the country's economic slump, she said.

Analysts said, however, that the major Japanese automotive projects on the drawing board for Indonesia had already been completed by early this year, after Japan's carmakers speeded up investment schedules in response to the launch of Indonesia's national car, the Timor.

The latest turmoil means that those projects face an increasingly bleak future.

"They (Japanese carmakers) had expected things to be bad, but they've become even worse. I think that's probably a source of worry," said Mitsubishi Research Institute analyst Ryuichiro Inoue.

More than 500 people were killed in riots last week as Indonesia faced its worst political violence in three years.

President Soeharto on Tuesday promised new elections and said he did not want to be nominated as president again. But he said he would stay in power to supervise the process of reform and gave no indication of when the elections would be held.

PT Toyota Astra Motor, a joint venture owned 49 percent by Toyota Motor Corp , the top-selling brand in Indonesia, and 51 percent by PT Astra International , halted output last Thursday as political unrest brought the economy to a standstill.

A Toyota spokesman said the shutdown would continue until Wednesday and could be extended.

Toyota Astra had just started up a second car assembly plant in February, lifting the venture's total production capacity to 130,000 vehicles per year.

Output had been cut by more than half due to Indonesia's financial crisis, however, with Astra sales down more than two- thirds in the past three months from year-ago levels.

A spokesman for Isuzu Motors Ltd , which owns 12.5 percent of commercial vehicle maker PT Pantja Motor, a joint venture with the Astra group, said output was halted and would be resumed when stability returned to the country.

He added, however, that the venture had already cut output by more than half. Prior to the economic downturn it had been producing about 40,000 multi-purpose vehicles per year.