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.