RI to rethink tariff cut on bus parts

RI to rethink tariff cut on bus parts

Phelim Kyne, Dow Jones/Jakarta

Indonesia's recent easing in bus part import tariffs may flood
the market with lower-cost China imports that could throw
hundreds of employees of DaimlerChrysler AG's local unit out of
work, a company executive said recently.

The automaker has asked Indonesia's government to rethink the
decision which the firm says threatens the viability of
DaimlerChrysler's local bus chassis production unit, said PT
DaimlerChrysler Distribution Indonesia deputy director of
marketing planning and communication, Yuniadi H. Hartono.

"We appeal to the government to review the (import) policy,
since we're talking about at least 350 people involved in the bus
unit and this is excluding the supporting industries," he told
Dow Jones Newswires.

Chinese companies that may benefit from the tariff reduction
include Zhengzhou Yutong Coach Manufacturing Co. and southern
Fujian province's King Long United Automotive Industry Co. said
Michael J. Dunne, founder of marketing and consulting firm
Automotive Resources Asia.

Indonesia last month scrapped import duties of up to 15
percent on five types of spare bus parts including timing belts
and engine blocks. Tariffs for both imported bus chassis and a
total of 1,150 completely-built new buses have fallen to 5
percent from as high as 40 percent.

The tariff reduction aimed to cushion the impact of a March 1
average 29 percent increase in fuel prices by limiting public
transportation firms' maintenance costs so that bus fare hikes do
not surpass 10 percent. The plan is also designed to quell public
opposition to the fuel price hikes which the government says are
essential to trim budget-blowing fuel subsidies.

Indonesia recorded inflation of 8.81 percent on-year in March
powered by a 10.03 percent rise in transportation prices in the
same period, the Central Statistics Agency data issued on Friday
indicates.

DaimlerChrysler's Indonesian bus unit produces rear-engine
chassis for luxury-standard buses for local clients including
state-owned intercity bus firm Damri and city bus operator
Perusahaan Pengangkutan Djakarta, or PPD.

DaimlerChrysler estimates sales of its bus chassis, which sell
for up to Rp 468 million (US$49,263.16) each, to rise to 600
units in 2005, outpacing sales of 550 units last year.

But Yuniadi cautioned that the company calculated that sale
projection prior to last month's tariff reduction announcement.

Sloppy implementation of tariff quota levels and potential
stockpile purchasing by end-users in Indonesia could have a
serious impact on DaimlerChrysler in the short-to-medium term.

"We are concerned that the (import) volume will exceed the
quota," he said.

DaimlerChrysler also worries that local firms will stockpile
lower-cost imported bus chassis and seriously impact the firm's
sales far beyond the planned one-year tariff reduction period.

"If (local firms) build up stock even though demand is half or
one-third (of such purchases)... it means for two years we won't
sell (our products)," Yuniadi said.

The timing of the bus part tariff reductions and its potential
impact on DaimlerChrysler's Indonesian operations coincides with
relatively flat local sales growth of its Mercedes-Benz luxury
sedan models.

DaimlerChrysler expects sales of its Mercedes' models, 95
percent of which are produced in a wholly-owned factory outside
Jakarta, to rise to 2,200 units this year from 2,053 units in
2004.

Those figures compare with domestic sales of Mercedes products
of "5000 to 6000 units" annually before the 1997 Asian financial
crisis, Yuniadi said.