Local car industry's recovery not in sight

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.