New policy set to cut 20% off price of imported cars

JAKARTA (JP): The government's new policy on the automobile industry will cut the price of imported cars by at least 20 percent, thanks to a significant reduction of import duties, analysts have said.

But the price of locally assembled cars will jerk up as companies will no longer receive tax breaks, which were tied to the level of local content.

"Prices of completely-built-up or imported vehicles will decline by around 20 percent due to much lower import duties," automobile industry analyst Suhari Sargo said in comments on the new policy.

The government announced on Thursday the new automotive policy, in which the government restructured import tariffs and luxury taxes on automobiles and removed incentives for vehicles with high local content.

Under the new policy, import tariffs on completely built up (CBU) sedans have been cut to between 65 percent and 80 percent, from 200 percent previously. Luxury taxes were set at between 30 percent and 50 percent, depending on engine capacity, compared to 35 percent previously.

Suhari said, however, that importers of CBU cars were still required to pay additional fees such as for vehicle certification. "If this payment is excluded, prices of imported cars would be much cheaper," he said.

The cut to prices of expensive limousines such as Mercedes Benz will not hurt long-established local assemblers, which mostly focus their investment on the production of commercial cars such as minibuses and vans, Suhari added.

But he said they would face tighter competition from newcomers, because they now have to compete on a level playing field.

"Competition for commercial cars, such as minivans, jeeps and sedans will be tighter because of these changes," Suhari said.

The technical director of car producer PT Toyota Astra Motor, Adirizal Nizar, said on Friday the removal of the tax incentives would make the company's Kijang van more expensive.

He said the price of Astra's most popular brand, Kijang, which has 49 percent local content, would increase by Rp 4.5 million (US$550) per unit with the lifting of the incentives.

Previously, Astra was not only exempted from import tariffs for the import of Kijang components but also paid a lower luxury car tax. At present, the country's largest automotive company has to pay the same rate of duties and luxury taxes as other manufacturers, despite the high amount of locally produced components it uses for some of its car makes.

Adirizal said prices of other Toyota vehicles, such as Corolla sedans and Land Cruiser are likely to increase due to higher import duties and luxury taxes imposed on the vehicles, he said.

David Purcell, sales manager of PT General Motors Indonesia, a subsidiary of U.S-based automobile giant General Motors, told The Jakarta Post on Saturday that the company was currently studying the impact of the regulations on its current products.

Under the new policy, General Motors' main product, the Opel Blazer, would pay import duty amounting to 45 percent, much lower than the 105 percent paid previously.

The luxury tax on recreational vehicles such as Opel was set at between 10 percent and 30 percent, lower than the 35 percent paid previously.

"But it is too early for us to make any decision, as we are studying the regulation and also other various factors that affect our pricing. One thing that is sure is that our main product, the Opel Blazer, will continue to represent good value for money for our customers in Indonesia," Purcell said.

Chairman of PT Krama Yudha Tiga Berlian Herman Z. Latif acknowledged that locally assembled minivans would face a tougher challenge from their imported competitors.

However, Herman said that prices of cars would remain stable at least until the end of this year due to plentiful domestic stock.

Despite the abolishment of incentives for local content, Suhari said the new automotive policy would still encourage the automotive industry to invest here.

"For the long term, the new policy is very effective in creating a strong automotive industry. I think it will continue to attract new players," he said.

Purcell said General Motors has invested around $150 million in its modern assembly facility in Indonesia and would continue to invest here despite the removal of incentives for local content.

"We believe that even with this new regulation, there are still many good opportunities and advantages for us to continue to develop local assemblies (products) here. Full utilization of our assembly facility will also provide job opportunities to local people," Purcell said. (gis)