Prices rise as rupiah keeps tumbling

Prices rise as rupiah keeps tumbling

By John Aglionby

CAR prices could rise by as much as 7 percent in wake of the
devastating fall in the value of the rupiah.

Automotive manufacturers are being extremely evasive over
exactly when and by how much vehicle prices will be raised but
the two biggest, Astra and Indomobil, have indicated that prices
will rise.

Most companies either refused to comment on the extent to
which increased production costs would be passed on to purchasers
or said that they were still discussing the issue internally and
had not yet made a decision.

The government let the rupiah float freely Thursday after it
sank to record lows. That day it plunged further, closing at Rp
2,810 to the dollar. It ended yesterday at Rp 2,880.

The president director of PT Toyota Astra Corp, Rudianto
Harianto, was quoted by Republika as saying the average increase
of its products would be between 2 percent and 3 percent.

He did not say when the increases would come into effect or
which vehicles would increase by how much.

Astra's other branches, which include Daihatsu, Peugeot,
Isuzu, Nissan and BMW are expected to rise by similar amounts,
according to Astra International president director Teddy
Rachmat.

Indonesia's largest automotive manufacturer's move comes a
week after its main rival, Indomobil, said it would increase
prices by between 4 percent and 7 percent.

Indomobil, a subsidiary of the Salim group, manufactures and
distributes Suzuki, Nissan, Volvo, Audi and Mazda in Indonesia.

The chairman of the Association of Indonesian Automotive
Industries, Herman Latif, said that potential buyers should not
be unduly worried that just because manufacturers' production
costs had risen, prices would also rise by the same amount.

"The automotive industry is not like making pisang goreng
(fried bananas).

"In the pisang goreng business, people work out the price
based on the cost of the bananas, oil and other overheads and
then add on the profit they want to make.

"With cars it is the other way round. The price depends on the
position of each vehicle in its market segment and the strategies
of each companies not on how much it will cost to make.

"The rupiah is still fluctuating a great deal. It has not yet
found its realistic value. Maybe it will go down further, to Rp
2,700 or even Rp 2,800 (to the dollar).

"Only when it has stabilized will manufacturers be able to
calculate their increased burden and therefore their increased
costs.

"But this is a mind game as much as anything. Before taking
any decision they will consider their competitors' situations and
whether demand is still strong in addition to how much their
costs had increased."

Latif refused to speculate on whether Mitsubishi, of which he
is vice president director, would raise its prices. "We are not
worried about the falling rupiah but we are following the
situation closely.

"We have vehicles in all segments of the market so we will
have to think very carefully before deciding on a course of
action."

Last week Indomobil's operational sales director Angky Camaro
was quoted by the Antara news agency as saying that if the rupiah
stopped fluctuating in the next one or two months "it is logical
that there will be a price adjustment."

As with Astra, no date has been fixed for the price increase
and it has not been announced how much each brand will increase
in price by.

Angky said: "It clearly has an impact on the overall
production costs because all of our imported materials are
counted in dollars."

This year Indomobil calculated its costs based on an exchange
rate of Rp 2,450 to the dollar, a figure the currency was last at
five weeks ago.

Another industry executive, who asked not to be named, said he
was not surprised that Astra had followed Indomobil's lead.

He said: "Automotive manufacturers are already working with
very tight profit margins on most of their products here,
particularly at the bottom end of the market."

If the rupiah weakened much more, he predicted that few
companies would have much choice but to pass on the effects of
the speculative attacks on the currency to the consumers.

"While what Indomobil has said may look bad in the short-term,
it would look even worse to say prices are going to remain stable
and then be forced to put them up.

"We are in this business to make money, not to give away
cars," he said.

One company that was willing to comment was Mercedes. The
company raised the price of the luxury German cars by between 1
percent and 2.5 percent at the beginning of July, 10 days before
the attacks on the rupiah began, but says no further increases
are likely.

A public relations officer for PT Star Motors Indonesia, the
sole distributor for Mercedes in Indonesia, Sasha Malonda, said:
"The directors will be discussing the issue soon but as far as I
know there are no plans to increase the prices of our cars at the
moment or in the near future."