Local car industry to face greater challenge in 1998
Local car industry to face greater challenge in 1998
By Devi M. Asmarani
JAKARTA (JP): The Indonesian car industry, one of the worst
hit sectors during this year's financial upheaval, will probably
have to travel an even rockier road next year, with the worst
jolts expected to come from gloomy sales and inflated import
costs.
Automotive analysts, car producers and the Association of
Indonesian Automotive Industries (Gaikindo) agree that the sector
is unlikely to repeat the impressive growth it enjoyed last year
and during the first half of this year.
They say people's weakening purchasing power will probably
mean car sales will drop as much as 50 percent next year, while
the rising costs of imported parts will force local car companies
to tighten their spending belts.
Gaikindo predicts that between 180,000 cars and 240,000 cars
will be sold next year. It recorded 354,064 car sales from
January to October this year.
"Realistically, the number of cars sold will be about 200,000
next year," Gaikindo secretary-general F. Soeseno told The
Jakarta Post.
Soeseno said the currency crisis, which has caused the
rupiah's value to drop almost 60 percent since July, had
increased the prices of imported goods, making cars twice as
expensive as they were.
At the same time the tight monetary policy imposed by the
government to cope with the crisis has raised loan interest rates
so that buying or leasing a car is also very expensive.
The association's data shows that until last August car sales
were on an upward trend with 4 percent to 5 percent growth
monthly.
In September, the number began to slide 18 percent to 35,238
cars, and 12 percent to 30,788 cars in October.
Car analyst Suhari estimated car sales slumped 40 percent to
18,183 cars in November, while this month car sales might not
exceed 10,000.
Soeseno said the sales decline would not stop car producers
from increasing their prices.
He said car companies would have to adjust to inflation by
raising prices 10 percent a month for at least the first half of
next year.
This would be followed by a slowdown in their business
expansion, he said.
Production cut
Expansion projects will be shelved and production capacities
will be reduced resulting in mass layoffs in the car industry.
Soeseno said some companies had already begun reducing
production by cutting their workers' shifts.
Gaikindo data shows that in the last two months, car
assembling production dropped 43 percent to 19,246 cars in
November from 34,110 cars in October.
November production was 41.5 percent lower than the same
period last year, in which 32,946 cars were produced.
Suhari predicted that monthly car sales next year would not
exceed 20,000 cars.
Should the Indonesian economy recover by mid 1998, sales might
pick up to about 25,000 cars a month until the end of the year,
he said.
The sales of middle market cars such Toyota Kijang would drop
sharply by about 50 percent, as buyers of this type of car
usually lease or get loans to buy the cars.
Interest rate rises would stop them from getting loans, he
said.
Truck sales would also drop as economic activity would not
remain as robust as in other years, and many companies would have
to postpone expansion projects, he said.
The drop in sedan sales would be between 25 percent and 30
percent, while that of commercial cars would be about 45 percent,
he said.
"The only category that will most likely suffer the lowest
drop next year will be luxury sedans, because the purchasing
power of these buyers will remain very strong," he told the Post.
But the sales volume of these cars would be so insignificant
that it would have little impact on the whole automotive
industry, he said.
PT Bimantara Citra Mobil Nasional, maker of Cakra and Nenggala
sedans, has had to revise their revenue projection for next year.
Bimantara's president Jongkie D. Sugiarto said the company
expected a 40 percent drop in its sales next year from an
estimated 5,000 cars sold this year.
On a more positive note, the survival skills of local car
companies next year will determine their success in the long run,
Suhari said.
"Next year is the year of determining whether the Indonesian
car industry will rise or fall, which companies will survive and
which will collapse."
By 2000, when the government's tax incentives for local car
production are lifted and import taxes are lowered, local car
companies would have to be extra competitive, he said.
"Those which survive next year, will probably be able to
compete in the liberalized market."
Indonesia has agreed to reduce import duty, now as high as 175
percent, on built-up cars by 2000 in return for the bail-out
program arranged by the International Monetary Fund to cope with
the Indonesian monetary crisis.
Details of the government's measure are expected to be
announced during the new ministerial cabinet meeting next April,
after the Presidential election.
Bimantara, which had formed a joint venture with South Korea's
Hyundai Motor Co to produce cars with a more than 60 percent
local content, were forced to shelve their US$400 million project
early this week because of financial difficulties and uncertainty
over the new car policy.
According to the existing policy, assemblers of passenger cars
are given tax incentives -- cuts in the import duty and value
added taxes -- to deepen their manufacturing operations.
Cars with a local content of less than 20 percent are, for
example, subject to an import duty of 65 percent for their
imported materials and value added tax of 35 percent. Those with
local content of above 60 percent are exempted from the import
tax but are still subject to a 20 percent value added tax.
Jongkie said if the tax incentives were eliminated and import
duty was drastically cut in 2000, there would be no sense in
continuing the project to build a plant, which was expected to
begin producing in mid 1999.
"Importing cars would be a better choice than making them here
then," he said.
If the new measures exclude tax exemptions on cars with over
60 percent local content, it is expected to affect the Timor car
project as well.
Timor Putra, controlled by President Soeharto's youngest son
Hutomo Mandala Putra, was granted import duty and luxury tax
exemptions to be the sole producer of a so-called national car,
driving its cost 60 percent below that of other cars in
Indonesia.
The company is cooperating with South Korea's Kia Motors Corp
to produce the car. Until its ongoing construction of production
facilities are completed mid next year, Timor is allowed to
import fully assembled cars from South Korea.
Suhari said the entrance of the much disputed Timor cars into
the domestic market was one of the most important events in the
local car industry this year.
"Although Timor has not been as successful as it had
anticipated, it grabbed about 25 percent of the market this
year," he said.
Between January and November this year, Timor sold about
18,193 cars, or 40.8 percent of the market share. It was
followed by Suzuki Baleno which sold 10,630 cars, and Toyota
Corolla 4,702 cars.
Suhari said Timor, however, would not be as strong as other
more established car companies with strong affiliations with
their principals.
These companies, the primary group, would be the most likely
to survive next year's hardships as their principals would help
them through the crisis, he said.
The principals of these companies, including Toyota,
Mitsubishi, Suzuki, Isuzu, Daihatsu, and Mercedes Benz trucks,
could not pull out from their businesses here without inflicting
a big financial impact on themselves, he said.
"For example, Toyota made so much profit from the sales of
Kijang here, so that it would do anything to boost their
partnership with Astra," he said, adding that the same would
happen with Daihatsu and Suzuki-made commercial cars.
Cars belonging to the second group, including the Timor cars,
Bimantara and Opel cars, could survive or even move up a rank if
they could enlarge their market shares.
But otherwise, these cars could end up being imported only,
like cars in the third group, like Fords, Mazdas, Daewo-made
cars, he said.