Locally-made cars may fail in free trade

Locally-made cars may fail in free trade

JAKARTA (JP): Indonesia's domestic-oriented automotive
industry, hampered by the government's inconsistent auto policy,
will face difficulties to compete in a free market, an expert
said.

Achmad Shauki, a researcher from the Institute for Economic
and Social Research at the University of Indonesia, said on
Saturday that Indonesia would not be able to compete with
Thailand and Malaysia in the automotive sector when the market is
opened by 2003.

"Policies in Thailand and Malaysia have created more efficient
automotive industries in both countries, compared with those in
Indonesia," Shauki said at a seminar organized by the
university's engineering school at the Jakarta Fair grounds.

Malaysia, Shauki said, has clearly directed its auto industry
toward producing national cars since the early 1980s. Because of
a limited domestic market, Malaysia forces its auto industry to
compete in the international market to reach the desired scale of
economics. Such a policy has created a more efficient auto
industry.

Unlike Malaysia, Thailand has improved the efficiency of its
auto industry through liberalization. It has liberalized its auto
market since 1991, making it the most liberalized auto market in
the Association of Southeast Asian Nations. Such liberalization
has helped cut auto prices by 33 percent, expand the market
rapidly and improve the industry's efficiency.

Unclear direction

Indonesia, on the other hand, has no clear direction in its
auto policy. The country, for example, has never exposed its auto
industry to international competition.

Shauki said the government's policy had only lured auto firms
to focus on the domestic market and, in some cases, created an
oligopolistic market, where the three largest assemblers --
Indomobil, Astra and Krama Yudha Tiga Berlian groups -- control
over 90 percent of the total market.

Such an oligopolistic market, supported by a high level of
tariff protection, has led to very uncompetitive vehicle prices,
especially those of passenger cars.

"The government's policies have opened chances for auto
assemblers to act in an oligopolistic manner in setting up auto
prices," Shauki said.

The government's recently unveiled national car policy is
another weak point for the country's auto industry, Shauki said.
The policy, which favors only one firm, PT Timor Putra Nasional,
to develop a national car, the Timor car, is unfair and alien in
the perspective of the country's whole automotive policy.

The first effect of such a policy, Shauki said, is the
stagnation of the market because consumers adopt a wait-and-see
strategy in buying cars, while a sizable market is needed to
support the development of an efficient auto industry.

The second impact is an over-entry or emergence of new models
on the domestic market to compete with the Timor car. Meanwhile,
such an over-entry has been the main culprit behind the low
efficiency of the country's automotive industry.

The most undesirable result is the decision of foreign auto
investors to shun Indonesia. Toyota and Honda, for instance, have
decided to build their auto bases in Thailand, instead of
Indonesia, to serve the Southeast Asian market.

Meanwhile, Herman Z. Latief, chairman of the Indonesian
Automotive Industry Association, said Indonesia's protected and
distorted auto market is not viable for any auto company to
invest in.

He suggested that the government give more incentives to those
which are really building automotive manufacturing and less
incentives to those which only import and sell vehicles. (rid)