Local carmakers ripe for the buying

By John Aglionby

When General Motors announced last month that it was buying out its local partner, President Soeharto's half-brother Probosutedjo, the world sat up and took notice. For while not all the American automotive giant's strategies have been worth emulating, this was certainly one that deserved consideration.

Eight months of economic meltdown have left practically the whole of the country's automotive sector not only in near- paralysis but also ripe for takeover by foreign firms confident -- as General Motors is -- of Indonesia's long-term economic potential.

The share price of PT Astra International says it all. On Feb. 24, 1997, it closed at Rp 6,350; on Feb. 24 this year the stock ended the trading day at Rp 1,575 and the trend is still firmly downward.

Unless, of course, one of Astra's foreign partners steps in and does what GM did with General Motors Buana Indonesia. Toyota raised its stake in its local arm of Astra, PT Toyota-Astra Motor, to 49 percent seven years ago and there is much speculation that the Japanese company is looking to expand its holding even more.

Isuzu, one of Toyota's stable mates in Astra, is another bait dangling there for foreign companies. The two most likely to step in here are Isuzu Japan, which only owns 20 percent of the stock in the company here, and GM, which has a 14 percent holding in the firm.

No foreign automotive companies are willing to confirm that they are about to follow GM's example "but it would be a logical step", one senior local industry executive said. "The situation at the moment is that almost everything is a very good buy.

"All local producers are in difficulties. They need fresh money and while most foreign partners are willing to inject more cash, they are not going to do it for free."

However, he said there were too many "X-factors" in the air at the moment for most firms' liking. "They will probably wait a few months for the currency issue and political situation to become a little clearer before taking a decision."

According to automotive analyst Sahari Sargo, companies can be divided into three categories with regard to their takeover possibilities. "The first are those that are already well established, such as Toyota, Mitsubishi, Suzuki and Isuzu. They are not going to let go in a hurry and they have strong cooperation with their principals. But there is always the cash- flow issue.

"The second are the newcomers, for example Hyundai, or even Timor perhaps. They have just started out (compared to the first group) and in the present situation, will want to just sit it out until the situation improves.

"And the third group are just the agents, such as Peugeot, Audi and Volvo. They are just looking for opportunities to sell and will probably wait for several years, until 2000, before wading into the local market."

Some foreign companies, however, are happy to have local partners. Frank Messer, the president director of PT German Motor Manufacturing (GMM) -- the sole Mercedes Benz agent here -- is more than content with his current arrangements, where PT Lima Satria Nirwana (LSN) has a one-third stake in GMM, a 49.18 percent holding in Mercedes' main distributor here, PT Star Motors Indonesia and a 40 percent share of PT Star Engines Indonesia.

"With this environment in Indonesia we believe it is good to have a local partner, whether it be 40 percent, 30 percent or only 10 percent.

"It gives us more contacts, helps solve problems and opens more doors than only expats would be able to.

"We have no plans (to buy out LSN) at the moment. It is not our first problem and we like to help overcome the situation here."

Messer's hand may be forced however in the coming months if automotive sales continue to plummet they way they have. Last month's total sales in Indonesia were about 14,500 and this month's are unlikely to top 10,000, according to a well-informed source.

"There are certain factors, like the People's Consultative Assembly General Session and people not wanting to buy until after the floods that usually occur at this time of year, but the trend is still definitely down and likely to remain so," he said.