Local component firms too weak to back Timor car

Local component firms too weak to back Timor car

JAKARTA (JP): Without further incentives, PT Timor Putra Nasional, the only car firm to get tax and tariff breaks under the new national car program, will face a serious challenge to meet local content requirements set by the government, an industry executive said yesterday.

Chairman of the Indonesian Automotive Industry Association Herman Z. Latif told a seminar that the existing local auto- supporting industries are very weak and will struggle to meet the demands of vehicle producers.

Additionally, Herman said, most locally-produced components are designed for the production of commercial vehicles, not for passenger cars.

"If it (Timor Putra) wants to use the existing local component firms, they will need further investments to adjust their production facilities to its necessities," Herman told the seminar, organized by the Institute for the Studies on Free Flow of Information.

The government announced last month that it would provide tariff and tax breaks to Timor Putra, owned by President Soeharto's youngest son Hutomo Mandala Putra, to develop a sedan under the Indonesian brand name "Timor" in cooperation with Kia Motors Corp. of South Korea.

The program gives Timor Putra three years to develop a national car, which has to contain local components of 20 percent by the end of the first year of operation, 40 percent by the end of the second year and 60 percent by the end of the third year.

Minister of Industry and Trade Tunky Ariwibowo said recently that the government will penalize Timor Putra by requiring it to pay the exempted duties and luxury sales tax if it fails to meet the requirements on local content.

The new policy has drawn criticism from various parties, including existing car assemblers, because they realize that the new policy will hit them hardest.

Herman contended, however, that it will not be easy for Timor Putra to reach the target of 20 percent local content by the end of the first year. Even if all the existing local producers of components are involved, they will contribute not more than 13 percent of all components.

"It will be far more difficult for Timor Putra to reach the 40-percent local content requirement in the second year," Herman said.

Supporting Herman's argument, industry analyst Soehari Sargo said that the government needs to give further incentives for the expansion of supporting industries to support the development of the Timor car.

"I hope that the government's policy on the national car will be followed up by a number of new rulings to encourage the development of vendor industries," Soehari said.

Herman noted that developing supporting industries is imperative if Indonesia wants to develop its own national car. In most other countries, he said, supporting industries contribute 60 to 70 percent of components to their car production.

"From a series of policies already introduced by the government, I can see a thread there that the government wants to move our automotive industry from the assembling stage to the manufacturing level." Herman said.

"However, I see a missing link. When we move from assembling to manufacturing, we are not building a strong basis in the supporting industries," he continued.

He acknowledged that the country's automotive industry has been protected for so long that the industry cannot yet progress to the manufacturing level. (rid)