Korean carmakers prepare plans for AFTA

Korean carmakers prepare plans for AFTA

Novan Iman Santosa, The Jakarta Post, Jakarta

South Korean carmakers Hyundai and KIA are considering setting up
a production base in Southeast Asia to take advantage of the
ASEAN Free Trade Area (AFTA).

"Hyundai and KIA headquarters will finalize the strategy for
ASEAN in the coming months. I expect it to be announced sometime
in June," Hyundai and KIA corporate marketing general manager for
the Asia Pacific Lee Soon-nam said on Friday. "Until then, I
cannot reveal any details."

Major automakers have set up facilities in Indonesia not only
for the domestic market, but also to export to Association of
Southeast Asian Nation member countries.

With a minimum local content of 40 percent from any ASEAN
country, a carmaker is entitled to a 5 percent import duty for
the member countries of the grouping.

This scheme has been employed by Japanese market leader
Toyota, which has focused the production of the multipurpose
vehicles the Kijang Innova and Avanza in Indonesia, but has
concentrated production of sedans and pickup trucks in Thailand.

Similarly, Honda assembles its Honda CR-V sports utility
vehicle (SUV), Stream MPV and Jazz compact car in Indonesia. The
Stream has been exported to Thailand, while Indonesia imports the
City sedan in return.

German automakers BMW and Mercedes-Benz also have established
assembly plants here, allowing for more affordable vehicles.

BMW assembles its 3 Series and 5 Series here -- except for the
BMW 330i, which is assembled in Thailand. Indonesia, in return,
exports the BMW 530i to Thailand.

Another premium German automaker, Audi, is reportedly
considering a regional production base to take advantage of AFTA.

PT Kia Mobil Indonesia, a local subsidiary of KIA Motors
Company, locally assembles the Carens II MPV and Pregio van at
its plant in Pulogadung, East Jakarta.

Lee from Hyundai and KIA acknowledged that Korean carmakers
were late compared to Japanese companies in responding to AFTA,
saying Korean companies had their focus elsewhere.

"Our headquarters in Seoul decided that we would set our focus
on the U.S., China and Europe first, then we would think of
Southeast Asia. We just can't do everything at the same time.

"We have and are constructing plants in Alabama, outside
Beijing and in Slovakia, respectively."

Lee said the ASEAN market was huge, with an estimated
production of three million cars by 2010. KIA hopes to have some
10 percent of the market share by that time.

"Larger volume will certainly reduce costs and prices," he
said. "Indonesia, however, has to work hard to woo more investors
to the automotive industry, just like what Malaysia and Thailand
are doing."

Poor infrastructure, legal uncertainty attributed to regional
autonomy and the absence of tax incentives have been blamed for
declining foreign investment not only in the automotive industry
but also in other industries.

Thailand has better infrastructure than Indonesia, making it
the center of the automotive industry in ASEAN, while Malaysia
has lowered its import duty.

"It is very crucial that the government design some benefits
to be able to compete with Malaysia and Thailand," said Lee.
"Otherwise, these countries will take the lead."