Local car industry looks to get in gear in 2000

Local car industry looks to get in gear in 2000

By Sylvia Gratia M. Nirang

JAKARTA (JP): Domestic automotive sales are back on track for
recovery, with most car manufacturers reporting higher sales this
year.

According to data of the Association of Indonesian Automotive
Industries (Gaikindo), automotive car sales reached 78,739 units
as of November, almost 35 percent higher than total sales for
1998.

The association says this year's total car sales could reach
over 85,000, far exceeding its gloomy prediction of 40,000.

Domestic car sales dropped to 58,303 in 1998 as the economic
crisis, which first struck in the middle of 1997, intensified and
the country's political situation become more tenuous following
the resignation of Soeharto after 32 years in power.

In 1997, car companies enjoyed 16 percent growth in sales over
1996, with domestic car sales of 386,691.

Both analysts and car producers are upbeat that car sales next
year will be much better than this year.

They named the strengthening of the rupiah and increased
consumer spending power as the dominant factors in rising car
demand.

"With the strengthening of the rupiah and improving people's
purchasing power, domestic car sales may reach around 160,000
units next year," Gaikindo's chairman Bambang Trisulo told The
Jakarta Post.

"The expected more stable political conditions under the new
government are expected to push up domestic car sales next year."

Auto industry analyst Suhari Sargo said that domestic car
sales in 2000 would range between 120,000 and 150,000.

"It will take time for our car industry to meet the upturn in
domestic demand, as they cut their production as much as 90
percent last year. Our weak banking sector and high interest rate
will also slow down the sales growth ... But, yes, we are on the
track of recovery."

Rapid growth in the local automotive sector was virtually
halted when the crisis hit the country in 1997, with the rupiah's
value plunging almost 80 percent against the U.S. dollar.

Purchasing value was almost halved, while car prices nearly
tripled.

Most car companies slashed production by as much as 90 percent
of capacity. Severe cost-cutting measures included layoffs.

Car assemblers produced only about 80,000 units from the
national car production capacity of 700,000.

Sales in January totaled a paltry 1,896, the lowest level
during 1999, as the economy continued to shrink.

Sales rose to 3,325 in February, 3,619 in March and reached
5,264 in April.

But they fell to 4,056 in May, prompted by lingering fears of
unrest during the campaign for the June general election.

The relatively peaceful campaign, smooth election process and
the victory of the Indonesian Democratic Party of Struggle (PDI
Perjuangan) at the polls, however, pushed up sales in June
(4,717) and July (8,658).

Sales grew to 8,927 units in August and 11,055 units in
September.

The year's sales peaked at 13,450 and 13,682 in October and
November respectively following the election of popular Muslim
leader Abdurrahman Wahid as president.

"The country's economic recovery and relatively stable
political condition after the general election are the main
contributors to the improvement in automotive vehicle sales this
year," Bambang said.

"International confidence propped up the rupiah's value and
lowered car prices," Suhari said.

Both warned the predictions of a turnaround were dependent on
the political state of affairs.

"Political stability and the security condition will remain
key factors in determining automotive sales next year," Suhari
said.

New models

With demand increasing, carmakers are also loosening their
purse strings, with investment earmarked for the introduction of
new models.

Most of the new models this year were family vans, with the
category contributing 80 percent of total national automotive
sales.

PT Kramayudha Tiga Berlian launched the multipurpose
Mitsubishi Kuda family van, PT Astra Daihatsu Motor debuted the
1,600-cc Daihatsu Taruna minivan in July, the local subsidiary of
U.S-based General Motors rolled out its Opel Blazer Montera, PT
Indomobil Sukses International banked on its Karimun family van
in September and PT Toyota-Astra Motor came out with its Camry
sedan.

Bambang said most of the models launched this year were
planned several years ago but shelved when the crisis hit.

"Despite the delay, the launching of new models showed that
local car producers and their principals are confident about
their investment here."

Suhari said investment in the automotive sector next year
would also extend to increasing production capacity.

In December, South Korea's Kia Motors reentered the Indonesian
car market through the new joint venture PT KIA Mobil Indonesia.

KIA Mobil president commissioner AM Hendropriyono said the
company allocated some US$20 million in initial investment. It
will import five Kia car models in completely built-up form.

He said that once the targeted market share was attained, the
company would build a manufacturing plant in Indonesia.

Deregulation

The government introduced a new policy in June which
restructured taxes and import tariffs on automobiles, as well as
relaxing their trade.

The deregulation is designed to make cars more affordable and
create a competitive automotive industry. It is also aimed at
encouraging the development of locally produced small sedans.

Under the new policy, the government abolished tax and tariff
incentives linked with the level of local content to comply with
the rules of the World Trade Organization. It also lowered the
import duty imposed on completely built-up cars.

Many warned the policy would deal a heavy blow to the ailing
automotive industry because it would raise prices of locally
produced cars, while at the same time lowering prices of imported
cars.

There also are fears the new policy will discourage carmakers
from investing and opening manufacturing plants here because it
would be more viable to import.

Despite the concerns, Bambang said the policy so far exerted
little impact on the industry.

"Most of the big players here have invested so much money to
develop manufacturing plants here. They will maintain their
investment," he said.

Automotive companies invested heavily in establishing local
manufacturing plants after a 1993 government regulation on
automotives, offering incentives to firms producing vehicles with
a high local content component.

Cars with over 40 percent local components were exempted from
import duties, and those with over 60 percent were entitled to
pay lower luxury tax on the remaining 40 percent of imported
components. However, no local manufacturers reached the 60
percent-stipulation.

Following the regulation, authorized car distributors
intensified their investment in the country. They built more
assembly lines and car component facilities to benefit from the
tax incentives and to be able to sell cheaper cars.

Bambang acknowledged that several companies started importing
CBU cars this year. The number of cars imported here reached
around 200 units this year, he said.

The Ministry of Industry and Trade's director of
transportation equipment, Noegardjito, said that cars imported
this year were categorized as luxury vehicles, with engine
capacity of above 1,600 cc.

He said his office allowed eight companies to import 30 types
of cars.

"But none of the cars to be imported has an engine capacity
below 1,500 cc. So it will not counterproductive to our aim to
develop locally produced small sedans," he said.

Among those which have been imported or are set to be in the
future are Mercedes-Benz, BMW, Land Cruiser, Suzuki Vitara and
Range Rover.

Noegardjito said PT KIA Mobil Indonesia said it would import
Kia Sportage, Kia Shuma, Carens and Rio sedans and Carnival
family vans, while PT Tjahja Sakti Motor planned to import
several types of BMW cars.

Suhari predicted an influx of imported cars next year as many
companies would take advantage of the lower import tariff.

"Imports are predicted to reach over 2,000 units next year,"
he said.

Some carmakers are reportedly planning to import small-engine
sedans. PT Bimantara Cakra Nusa is said to be ready to import
1,000 cc engine capacity Hyundai Atos sedans.

The managing director of Japan's Daihatsu Motor Co. Ltd.,
Kentaro Shimizu, said the company might begin to export its
small-engine CBU sedans to Indonesia to take advantage of the
lower import tariffs, although it would still produce its
Daihatsu Feroza locally.

Even with more small sedans crowding the country's streets,
Bambang and Suhari agreed the family van would still control the
market.