Local carmakers ripe for the buying

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.