RI invites German automakers to get into Indonesian fast lane

The Jakarta Post

The government has invited three big German automakers in to make Indonesia their production bases and gateways to other Southeast Asian countries, pointing to an improving investment climate and the possibility of fiscal incentives.

"European carmakers are seeking new countries to establish their production bases in as the economies of the Asian countries grow rapidly, particularly those in eastern Asia," the Industry Ministry's director general for transportation and IT industries, Budi Darmadi, said Monday.

Budi and Investment Coordinating Board director Muhammad Lutfi met with automaker executives last week during a three-day visit to the German headquarters of Volkswagen in Wolfsburg, Mercedes Benz in Stuttgart and Audi in Ingolstadt.

Budi and Lutfi were on a mission to persuade the executives that they would benefit from opening auto plants in Indonesia.

Mercedes Benz has had an assembly plant in Gunung Putri, east of Jakarta, since 1985, while the country's economic crisis forced Volkswagen to shut its plant in 2000 after only two years in operation.

Budi said that Audi and Volkswagen, whose plants in China and South Korea serve the Southeast Asian and Pacific regional markets, were both convinced they would be unable to keep up with growing demand should they rely solely on their bases in these two countries.

"China's demand takes up almost all the Volkswagens and Audis produced there, let alone the markets in other countries."

Indonesia's total commercial and passenger vehicle sales nose-dived to 318,304 in 2006 from 534,000 in 2005 due to higher lending rates.

Total automotive sales this year amounted to 84,511 as of March. Sales are expected to increase to 400,000 this year as demand picks up on the back of declining interest rates.

At last week's meeting, Budi said, Volkswagen had informed him it was looking into the possibility of investing here, while Mercedes Benz would keep its base here and might expand its production. "Audi will likely invest here but wants to wait for a while".

Ahmad Badawi, the national sales manager of PT Garuda Mataram Motor, the licensed Volkswagen distributor in Indonesia, earlier said that Volkswagen would not consider producing cars here for the time being due to low sales.

Last year, Volkswagen sold 57 vans, down from 91 in 2005.

According to Budi, the automakers are now looking at Indonesia due to falling lending rates, the faster pace of infrastructural development, the introduction of new car models and the increase in per-capita income -- which is growing annually by between US$400 and $500, on average.

Other pluses included the new Investment Law -- passed late last month -- and the Finance Ministry's regulation removing duty from automotive components and raw materials for automotive component production, which was issued on April 3 and came into effect last Thursday for a one-year period. Previously, import duties ranged from between 5 and 15 percent.

Mercedes Benz led the premium automotive market last year on 692 cars, followed by BMW on 600, Audi on 90, Volvo on 69 and Jaguar on 27.