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.