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)