National car plans dramatically slow the market
National car plans dramatically slow the market
By Russel Williamson
Indonesian car sales have slowed dramatically after last month's radical shakeup of the domestic automotive industry.
Following the announcement by Minister of Industry and Trade Tunky Ariwibowo, of the new regulations pertaining to the development of the national car and the granting of "pioneer status", together with massive tax concessions to PT Timor Putra Nasional to build the car, the market has come to a virtual standstill.
Timor Putra has been granted exemption from all import duties and luxury car taxes for the two cars it plans to build, which will be based on South Korean manufacturer Kia's Sephia sedan and 4WD Sportage.
Association of Indonesian Automotive Industries (GAIKINDO) chairman, Herman Latif, said the dramatic changes had dealt a psychological blow to the entire industry and caused a great deal of confusion in the marketplace.
"I got a report from the field that the market is confused and standing still and everyone is expecting all car prices will come down," Herman said.
He said consumers would be wrong to think that because the Timor sedan will be sold at about Rp 35 million, all the other manufacturers would reduce the prices of their small sedans to remain competitive.
However, Herman said the full effect of the new policy would not be fully known until the Timor cars actually go on sale around September.
"Within two or three months (from the launch of Timor) we will know the actual impact," Herman said.
"So, hopefully, by the end of this year, we will have a clearer picture about the situation," he said.
Herman expects the introduction of the Timor to have an effect on the sales of vehicles priced between Rp 30 million and Rp 70 million, a market presently dominated by the Japanese companies, with the greatest effect on those priced below Rp 35 million.
Ultimately though, he said, any effect would rely on the market's acceptance of the car and the ability of Timor to meet the demand.
Timor Putra is only expected to produce 16,000 cars this year, which is less than 10 percent of the market segment in the Rp 30 million to Rp 70 million price range.
Herman said last year sales in this segment were about 200,000 cars and a movement of less than 10 percent was a usual fluctuation.
But, Herman said, if the market demanded more Timor cars, it would be relatively easy for Timor Putra to increase production as the initial vehicles will be assembled from semi knocked down kits rather than completely knocked down kits.
According to Tunky, the tax concessions given to Timor Putra, which is headed by President Soeharto's youngest son Hutomo Mandala Putra, were required to help Indonesia develop its automotive industry further.
Indonesian government officials have privately criticized the existing Japanese carmakers for not doing enough to transfer technology to Indonesian industry and to encourage component manufacturers and other supporting companies.
In an interview with the Straits Times, Tunky said: "We have to cooperate with someone who is really willing to give the technology and provide everything in order for us to develop our own technology and industry.
"The Japanese have been here since the early 1970s.
"Everybody knows the developments we have had so far, not enough attention has been given to developing support industries," Tunky said.
While Herman, who is also vice president of the Krama Yudha Group which assembles and distributes Mitsubishi vehicles in Indonesia, would not comment directly on Tunky's criticism, he did point out that there had been a recent change in direction in the Indonesian car market.
He said the focus had previously been on building and selling commercial vehicles rather than sedan cars and the level of local components in these vehicles was very good.
"Until the announcement of this Inpres number 2 (Presidential directive) the basic policy for the local automotive industry was based on the commercial vehicle," Herman said.
As a result, he said, most of the carmakers, other than Honda who had no commercial vehicles in the market, had not invested heavily in support industries for sedan cars.
Herman said with the new regulations and the tax exemptions only available to Timor, the existing carmakers were unlikely to make further investments in this area in the immediate future.
"There is a handicap between the national car and existing production and that is that they (Timor Putra) are enjoying the exemption of the import duty and the exemption of the luxury tax," Herman said.
"As long as this handicap is still there, there is no merit for you to make the investment because you have still have got the government tax and you cannot compete.
"Before this announcement, we (Mitsubishi) had the regular schedule for introducing minor changes and new models but now we will wait and see what is the development in the market," he said.
Herman said there was little that could be done to alter the situation, so the foreign-partnered car manufacturers in Indonesia had to make the best of the situation.
"We understand that we have to accept that as a given condition for us, so what our priority is now is to see what is the actual impact on our existing business," he said.
"I think our Japanese partners understand my way of thinking so we will just wait and see what is the impact in the market."
There were suggestions within the industry that the Japanese and U.S. governments and automotive industries were considering making a complaint to the World Trade Organization about the new car policy.
However, Herman said he thought this could do more harm than good for the Indonesian car industry.
Two weeks ago, a mission from the Japanese Automotive Manufacturing Association met with Tunky and others involved in Indonesia's car industry to discuss the policy and Automotive Business understands that it is now very unlikely that a formal complaint will be made.