Timor car may need more help

Timor car may need more help

JAKARTA (JP): Some automotive industry analysts predict that the government will introduce more measures to protect PT Timor Putra Nasional if the car it is developing fails in the local market.

Sri Mulyani I. Sumartono and Faisal H. Basri, both economists at the University of Indonesia, said last week that in addition to giving special exemptions to Timor Putra -- the only firm assigned to develop a national car -- the government will have to save the company if it fails in the competitive sedan market.

"When it turns out that Timor Putra cannot compete locally...I suspect that the government will introduce new measures to protect it," Sri said after a seminar on the government's national car program.

The government announced in February that it will provide a series of tax and tariff breaks to Timor Putra, which is controlled by President Soeharto's youngest son Hutomo Mandala Putra, to produce a national car under the Indonesian brand name "Timor" in cooperation with Kia Motors Corp. of South Korea.

The government has turned down all proposals from other firms interested in developing similar cars under the same special conditions.

"I don't understand why a new company which hasn't even begun production is qualified as a pioneering firm to develop a national car," Sri told the seminar organized by the Center for Information and Development Studies (CIDES).

Sri and Faisal said the government's granting of "pioneer" status to Timor Putra lacked transparency and they questioned the company's ability to develop the car within three years.

The government has given Timor Putra three years to develop the car, which must contain 20-percent local content by the end of the first year, 40 percent after second year and 60 percent by the end of the third year.

"Unless there is a miracle, three years will not be enough for Timor Putra to meet the target of 60-percent local content," Faisal said.

Components

Other industry analysts believe that local vendors are not strong enough to support production of the Timor car because most components are produced for commercial vehicles, not passenger cars.

They add that all the local vendors combined would not contribute more than 13 percent of the necessary components.

Umar Juoro, a CIDES researcher, agreed with Sri and Faisal, saying that it will not be easy for Timor Putra to fulfill the 60-percent local content requirement.

"However, the new policy could advocate developing the domestic component industry and encourage the existing car firms to enter the component and machinery industries," Umar said at the seminar.

But, said Sri, even if Timor Putra can meet the requirements, there is no guarantee that the Timor car will be accepted by the market.

"The government can issue rulings to extend tax and tariff breaks to Timor Putra or require state institutions to buy its car. However, it cannot force the market to accept the car," Sri noted.

Sri argued that people in higher income brackets will maintain their preferences for certain cars, while most Indonesians -- with their extended families -- will continue buying multi- purpose vehicles rather than sedans.

If Timor Putra's cars are not popular with local consumers, Sri said, the government could require state institutions to purchase its cars as their operational vehicles.

The government, he said, is likely to defend Timor Putra until it is ready to compete with existing car assemblers and may require other entries into the national car program to meet the 60-percent local content requirement to qualify for the tax and tariff breaks. (rid)