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)