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.