Proton revives plan to buy Indonesian auto plant

Proton revives plan to buy Indonesian auto plant

Agence France-Presse, Kuala Lumpur

Malaysia's national carmaker Proton has revived plans to acquire
an auto assembly plant in Indonesia as part of its expansion into
Southeast Asia and to battle increasing competition under a
regional free trade agreement, a report said on Monday.

The Financial Daily quoted a source as saying that a letter of
intent has been signed by the carmaker's distribution arm, Proton
Edar, to acquire the plant in Cikarang estimated to be valued at
US$20 million.

Proton Edar's Indonesian unit is proposing to buy the plant on
a 95:5 joint venture basis with Indonesian businessman Ahmad
Safiun, the report said.

Proton first proposed in 2001 to buy the plant in Cikarang,
which is an hour's drive southeast of the Indonesian capital of
Jakarta, through a 70:30 joint venture with the original owner PT
Ningz Multiusaha.

It did not materialize because its Indonesian partner backed
out due to capital constraints, the newspaper said. The plant
used to produce Chrysler cars for the Indonesian market but is
now dormant after it was taken over by Indonesia's PT Bank Lippo.

Sources said the saturated Malaysian market and rising
competition under the Association of Southeast Asian Nations
(ASEAN) Free Trade Area (AFTA) has prompted Proton to revive the
acquisition plan.

PT Proton Edar Indonesia is expected to complete in March the
evaluation of the Cikarang plant. which will allow it to produce
and distribute its cars in Indonesia and regionally to other
ASEAN markets, sources said.

According to the report, Proton will initially produce the
Waja sedan, followed by the Wira and Iswara models for taxis in
Indonesia in August.

It aims to churn out 8,000 and 13,000 cars in the first and
second years of operations respectively to capture 2.5 percent of
Indonesia's passenger car market.

Proton already has plants in Iran and China, and has expressed
the intent to expand to markets in Indonesia, Thailand and
Vietnam because it said the Malaysian car market, which is the
largest in Southeast Asia, has a serious overcapacity problem.

Proton, set up nearly two decades ago, used to sell six out of
10 new cars in the country but for the first time in years, its
market share has shrunk to less than 50 percent in 2003 under
intense competition from Japanese and South Korean rivals.

Analysts say this is a crucial year for the carmaker, which
faces more pressure because of higher duties and greater foreign
competition under a new tariff structure imposed in January as
part of Malaysia's plans to liberalize the auto sector ahead of
AFTA.

Proton has sought another 20 years of tariff protection but
the government has remained silent so far on the carmaker's
request.

Under AFTA, import tariffs for most products in the region
were cut to below 5 percent over the last year. Malaysia obtained
a two-year reprieve for its auto industry until 2005 but it
recently said it would further defer reducing duties to the
required level until 2008.