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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

CARS

Brothers at the Wheel:
Suhartos take the lead
in the Indonesian car program

By Ajay Singh and Keith Loveard / Jakarta


A LITTLE SIBLING RIVALRY doesn't hurt -- unless you happen to be a foreign automaker in Indonesia. Recently, Jakarta gave local assemblers a few dents by granting generous tax breaks to Timor Putra Nasional, a car firm owned by President Suharto's youngest son, Hutomo Mandala Putra (a.k.a. Tommy Suharto). Under a new national car manufacturing program, Tommy's Timor, which will produce sedans in partnership with Korea's Kia Motor, would be exempt from hefty parts and luxury levies. Then last week, Bambang Trihatmodjo, the president's second son, announced that his Bimantara Citra group, which assembles another Korean make, Hyundai, would compete with Timor to build a national car. He declared he could "launch a car by the end of the year if we get the same facilities as Timor."

That left the country's established brands and assemblers protectively stepping on the brakes as they assess the new road signs in their fast-growing but highly competitive industry. Under the program announced by Industry Minister Tunky Ariwibowo, wholly Indonesian-owned companies would be granted tax-free "pioneer" status if they use Indonesian brand names and plenty of Indonesian-made parts. The plan requires 20% local content after the first year, 40% after the second and 60% after the third. Existing sedan assemblers source less than 10% of their components from domestic suppliers.

"Most of the foreign investors were upset" over the plan, said Jonathan Harris of securities firm Hoare Govett. The government's decision, he added, had made "investing in Indonesia less predictable." Gaikindo, the local carmakers' association, warned that members may put their expansion plans on hold. The share price of Astra International, the dominant local car assembler and distributor, plummeted from 5,000 rupiah to a low of Rp 2,625 on March 11 before recovering.

Japanese trade attache Toyokuni Koji said the World Trade Organization (WTO) should condemn Jakarta's program if it discriminated against car imports. But it isn't clear how far foreign governments would take such a complaint. They pretty much stood aside when Jakarta reversed its own stated policy earlier this year and extended protection to Chandra Asri, a petrochemicals venture involving Bambang. The car program may itself be an attempt to build up an auto industry before Indonesia implements a WTO commitment to cut or scrap car tariffs (now 65% on parts) by 2003.

The plan's aim, said Ariwibowo, was to free Indonesia from the domination of Japanese and American cars. While luxury European marques may be impervious to economy rivals, Japanese brands may have trouble keeping their combined market share above 90%. With its concessions, Timor would be able to produce a 1,500-cc sedan (also to be named after the Indonesian island near Australia) for less than $15,000 -- about half the price of the Hyundai Elantra, the cheapest equivalent model on the market.

Other producers have been planning lower-cost sedans. Ford is reportedly set to greatly expand its local operations. Both the U.S. giant and Mitsubishi are said to be looking at a cut-rate design suitable for Asia. Research and Technology Minister B.J. Habibie has been scouting around for a foreign partner to help build yet another Indonesian car. Originally eyeing Britain's Rover, he has switched, first to an Australian consortium, then to Germany's Volkswagen. "You can't be sure people will want a Korean car," says a Habibie aide.

Astra was expected to invest up to $120 million boosting local content over the next three years. It too may consider joining the manufacturing program. For the moment, though, bachelor race driver Tommy Suharto, 33, and, if he also gets pioneer status, brother Bambang, 43, seem set to challenge Astra and other leaders in the market Also worth watching is their sister Siti Hardiyanti Rukmana, whose firm imports Protons, Malaysia's national car.

There is no guarantee that pioneer firms would clean up with cheaper sedans. The few Indonesians who can afford cars often put prestige, styling and performance above price. Moreover, most motorists still prefer multi-purpose vehicles such as Toyota's Kijang, which can also carry goods. At $13,000 to $19,000, an 1,800-cc model launched last year has been very popular. But a $13,000 bargain sedan marketed in 1990 by Indomobil bombed. Although Indonesia's car sales are projected to grow 13% this year and 14% a year in the next two, the sedan market is forecast to stay relatively small. Says analyst Silih Agung Wasesa: "It is more likely that people will continue to prefer a commercial vehicle as their first car." One big reason: it's taxed at half the rate on sedans.


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