U.S. car giant plans US$1.4 billion investment in RI

Benget Simbolon Tnb. and Prodita Kusuma Sabarini, The Jakarta Post, Jakarta

A United States-based automotive manufacturer has apparently expressed interest in building a car factory worth up to US$1.4 billion in Indonesia to tap into the region's expanding car market.

Chairman of the Investment Coordination Board (BKPM) M. Lutfi said the unnamed U.S. company, which operated a car assembly plant in Thailand, was currently weighing up whether to expand in the country or to open a new plant in Indonesia.

"The company has already produced pickup trucks in Thailand," Lutfi told the press after addressing an investment discussion with the Indonesian Chamber of Commerce and Industry (Kadin) and Trade Minister Mari E. Pangestu over the weekend.

He did not disclose the name of the company but said the company's cars had already been imported to Indonesia.

American automotive giants General Motors (GM) and Ford Motor Company have both opened assembly plants in Thailand, but only GM produces pickup trucks in its Thai factory.

Lufti said the American car producer planned to build a new factory that would have an annual production capacity of around 200,000 sedans with capacities ranging from 1,000 cc to 2,000 cc.

He said the factory would handle all the manufacturing processes and was guaranteed to have 80 percent local content. "The company considers Indonesia's market to be quite promising," Lufti said. "They plan to produce 200,000 vehicles, about 70,000 of which will be sold on the Indonesian market, while the rest will be aimed at the export market, mainly that of Australia."

He said the American firm had shortlisted Indonesia and Thailand as planned locations to develop its car business. "Currently, Coordinating Minister for Economic Affairs Boediono is negotiating the planned investment with the American company."

He said the company was asking the government for a tax deferment of up to eight years and an exemption from luxury taxes on cars with engine capacities above 1,500 cc.

"These incentives could be our weakness in competing with Thailand," he said. "Thailand provides a holiday tax ranging from four to eight years and exempts certain car products from the luxury taxes. It also has reached free trade agreements with a number of countries, which can make it easier for them to export."

But said he believed Indonesia would win the American firm's investment, as the country had a large potential market.

The government, he said, had to give better fiscal and non-fiscal incentives for the American company to realize its investment in Indonesia.

"If we compare (ourselves) with our competitors, we have suffered some loses. If this were a soccer game, we would have lost 2-0 to Vietnam, for example. First, we lost the Canon company, then Intel. Vietnam has won the two giants," he said, suggesting that this time Indonesia could not afford another loss.

Currently, car manufacturers from across the globe are competing to tap the Indonesian market, which has seen annual sales increasing.

Indonesia is now the third largest car market in Southeast Asia after Thailand and Malaysia.

Data from the Association of Indonesian Automotive Manufacturers (Gaikindo) shows that car sales rose by 36 percent to 483,000 units in 2004, and by 11 percent to 533,841 cars in 2005.

International car manufacturers are also seeking to take advantage of the Association of Southeast Asian Nations Free Trade Area (AFTA).

Since 2003, under the AFTA, all tariffs, including those on cars, have been cut to between 0 and 5 percent.
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