Local car industry's recovery not in sight

By Devi M. Asmarani

JAKARTA (JP): The road towards recovery will remain long and rough for the battered automotive industry, as the depressed economy will likely maintain car sales next year at the current shrunken level.

Estimates from industry sources and analysts on the domestic sales of cars range from the pessimistic 40,000 to a high of 60,000 units in the last year of the millennium, not much of an improvement from this year's expectation.

"Worst scenario may be 40,000," car analyst Suhari Sargo said, adding that only three to four brands would be able to survive as manufacturers in the country.

Others would remain dormant until the economy swings back, he said.

This means over 10 years of retreat for the country's car industry, which has been experiencing relatively steady growth in the past decade.

This years car sales are expected to reach only about 60,000 units.

Last year, car companies enjoyed a 16 percent growth in sales from 1996, totaling 366,435 cars sold domestically.

Years of high growth had drawn newcomers to the country's car market to benefit from the huge potential of the 200-million strong nation. The newcomers included the U.S.-based General Motors, and South Korea's Hyundai, Daewoo and Kia.

But then came the monetary crisis in the middle of last year, pushing the rupiah's value down by over 60 percent against the U.S. dollar.

Purchasing value was almost halved, while car prices more than doubled.

At the beginning of this year, when the rupiah was fluctuating wildly, many dealerships stopped selling certain cars for fear of suffering losses from the fluctuations.

Most car companies slashed production by as much as 90 percent of their production capacities. They enforced severe cost- cutting measures including streamlining their workforces.

Some producers of up-market cars like Volvo quit producing at all for several months, and the principal companies began reviewing their operations here.

Results of the reviews would likely require the car firms to inject fresh capital and raise their stakes in their local partners, as Germany's Mercedes-Benz has done to help its partner, PT Lima Satria Nirwana.

Some debt-ridden car producers have had to ask their principal companies to inject fresh capital in order to help them survive.

Japanese automaker Daihatsu Motors and major trading house Nichimen Corp. agreed to raise their stakes in PT Astra Daihatsu Motor, a subsidiary of Indonesia's largest automaker PT Astra International.

General Motors had even acquired the entire stake of Garmak Motor Buana Indonesia at the dawn of the crisis in 1997.

This has left the existing 16 car assemblers in the country to produce only 10 percent of the total 500,000 national production capacity of cars.

Benny Santoso, an executive director of the Salim Group which owns one of the largest car producers, PT Indomobil Sukses Internasional, said: "Our automotive industry is practically dead."

Suhari said it would likely be longer than 10 years before the country could bring sales back to the 1997 level again.

Politics

Like other industries sensitive to social tensions, the automotive sector bore the brunt of the series of political upheavals this year.

This was shown by a drastic drop in the volume of car sales in months when political tensions were more feverish than others.

In January car sales totaled 14,339. Though much lower than the normal 30,000 pre-crisis, this topped the sales of cars in the remaining 11 months of this year.

Car sales dropped to 6,635 cars in February, and were down to 2,136 and 2,051 cars in May and June respectively, following the fatal May riots, which led to president Soeharto's resignation.

Sales fluctuated in the second half of the year, reaching their highest at 5,101 in August. But in politically tense November when the People's Consultative Assembly held its widely- opposed Special Session, sales dropped again to 2,470.

Sporadic riots, fueled by student protests as well as by religious sentiments, marked a bloody November, during which most dealerships closed their businesses for fears of a repetition of the May riots, when many outlets and cars were targeted by mobs.

Next year the much-feared general election will be conducted in June, and in the run-up to the election people are concerned that more unrest will deter potential customers from making a car purchase.

Liberalization

Despite the market downturn, however, competition will likely be tighter next year, following the enforcement of the World Trade Organization's (WTO) sanction on Indonesia over the case of the previous preferential treatment for the Timor car project.

The government lifted in January the tax facilities for car maker PT Timor Putra Nasional, which was given the sole right to develop the controversial national car program.

But despite the facility's removal, the country still has to suffer the consequences of the special treatment given to Timor, which is controlled by Soeharto's son Hutomo Mandala Putra.

The WTO committee decided on Dec. 7 that Indonesia must lift its current policy on the automotive industry. The policy offers lower import tariffs for producers of cars with high local components.

This measure must be lifted by July 23, 1999, a year earlier than the planned 2000, according to the WTO.

The new ruling means any company will be able to import cars freely and that assembling a car here may cost more than merely importing one.

Suhari said that with the new ruling many authorized distributors of cars that currently used the assembly line facilities of larger automakers would likely stop assembling here and begin importing vehicles to cut production costs.