Salim may sell automotive arm to Ford Motor

Salim may sell automotive arm to Ford Motor

SINGAPORE (Dow Jones): Indonesia's Salim Group is discussing the possibility of selling part of its automotive arm to Ford Motor, a Salim executive said.

The executive, requesting anonymity, told Dow Jones Newswires that there have been "good discussions" with Ford about the possibility that the U.S. company would enter into a joint venture with Salim's PT Indomobil Sukses International.

Eventually, he said, "we hope there will be a positive result" from the talks.

Earlier this month, the director of Ford's Asia-Pacific operations, Gerald Kania, visited Jakarta to look into the auto industry. Afterwards, he said in Singapore that Ford had talked to Indomobil "along with other people" about the U.S. carmaker's desire to assemble cars in Indonesia -- a market it had avoided in recent years due to unhappiness about the Timor "national car" project led by former president Soeharto's youngest son.

The 1996 announcement of that project, which received special tax breaks, caused Ford to drop plans to invest in Indonesia.

Instead, it invested US$100 million in an assembly plant in the Philippines.

Now, with the "national car" scrapped, Ford "will return to Indonesia," Kania said.

Auto industry executives say it would be natural for Ford and Indomobil to work together. Indomobil, which assembles Suzuki motorcycles and autos, has been the Indonesian assembler and seller of Mazda and Volvo vehicles.

Ford owns about 33 percent of Mazda Motor Corp. and earlier this year received approval to acquire Volvo Car Holding Corp., the car operations of Sweden's Volvo AB.

It's also natural for the struggling Salim Group to look for a new investor, they say. Salim, whose chairman Liem Sioe Liong was a longtime ally of Soeharto, has been selling a series of assets to repay debts and restructure. The automotive business isn't one of Salim's major ones -- its pillars were banking, food and cement -- but Indomobil, Indonesia's second biggest car seller, still has some value, analysts say.

But determining what level of value would likely be difficult, they added.

Indonesia's auto business has been crushed by the country's economic crisis, with car sales down about 90 percent from peak levels in the first half of 1997. Last month, the Indonesian Automotive Association reported that in January, Indomobil sold only 295 Suzuki cars nationwide, and just 114 in December.

While in Singapore, Ford's Kania noted there's "lots of overcapacity" at Indonesian assemblers. (Indomobil last year stopped assembling Volvos.) Still, the Ford executive said the business should be viable in the future. "It's not going to go much further down," Kania said, "There are a lot of old cars that will get replaced."

Working to enter the Indonesian car business is one part of Ford's efforts to expand significantly throughout Asia, he said. "Asia's a big part of world (auto) demand, and Ford doesn't play" at present, the executive said.

He said the U.S. company wants to have 10 percent of the Asian market in 10 years, compared with a "very small percentage" today. To get to 10 percent, "we're going to have to be very aggressive in Asia," Kania said.