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Participants’ Case Studies
The six case studies included in this folder were created for training
purposes only by the participants of the Managing Structural
Adjustment from Trade Reform Training Program.
They have not been presented to Ministers in the respective
countries.
Indonesian Experience in Structural Adjustment
Case Study: Automotive Industry Policy Reform
(National Car Program)
Prepared by:
Indonesian Participants
BACHTIAR PANGARIBUAN
MANGASA MARPAUNG
KASAN MUHRI
1
Presented on
Implementation of Trade Liberalization and Managing Structural Adjustment
Course, Melbourne-Australia 11-19 November 2004.
A. Introduction
Indonesia, like many other countries in Southeast Asia, has actively promoted
the automotive industry. The governmental interventions have ranged from tariffs and
non-tariffs barriers to various local content programs. As a result, imports of ready
made cars and motorcycles have been expensive, which led to an inflow of foreign
producers.
The high protection against imports of ready made motor vehicles resulted in
an inflow of foreign assemblers who imported most of their parts and components.
However, Indonesian government was not satisfied with hosting only the assembling
part of the automotive production, and launched various programs to increase the
local content. Most programs were explicitly specifying parts and components which
had to be manufactured locally (Thee 1990). The foreign firms responded by starting
up new automotive component companies in Indonesia, often as joint ventures with
local firms.
The automobile sector has also undergone major policy changes since the
industry's collapse in 1998. Import substitution policies gave way to an exportoriented Automotive Development Policy in June 1999. Accordingly, import
restrictions on cars were abolished, and tax incentives for local content removed.
Tariffs on motor vehicles, still high at 80%, were substantially lowered from 200%.
Rates on CKD (completely-knocked-down) kits were also reduced, from 65% to 2550% depending upon engine size, and on components to 15%. Increased luxury sales
taxes, of up to 75%, depending upon engine size, target imports. Imports of certain
used cars are banned.
The opening of the automotive sector market since 1999 was giving positive
gestures to aspect such as alternative choices to the consumers, while competition of
CBU against local ones forced industries to face and carry out hard competition. In
addition, deregulation measure in automotive industry regulating the role of sole
agent (ATPM) has changed competition in domestic market, particularly in
distribution and trade system. Non ATPM could now open car assembling plants or
import cars. In fact a number of ATPMs has lost control of their manufacturing
2
division and operate only sales agent for cars produced by manufacturing division
now controlled by their foreign principals.
The deregulation in 1999 is big issue because this issue not only deals with its
industry and trade policy including the WTO agreement but also deals with political
issue. The reason of government to give special treatment in one company is transfer
of technology, but, the government policy is discriminative. Therefore, this paper will
examine the policy adjustment measures in Indonesian automotive industry and
industry performance post –policy adjustment reform. In addition, it also to identify
some impacts of automotive industrial policy, particularly deregulation implemented
in 1999 concerning National Car Program and regulation concerning sole agents. For
specific purposes this paper is aimed to explain production, distribution and
competition in domestic market post policy adjustment.
B. Policy Adjustment Measures
Automobile assembling in Indonesia already existed in 1927 when General
Motors built a plant in Jakarta. Until 1969, imports of automobiles were not regulated
and the industry consisted mainly of trading activities with very limited assembling
operations. However, assembling activities were started in 1964 with semi knockeddown components, but then the process progressed into assembling of knocked-down
parts in 1971.
To increase the role of local manufacturing, the government in 1971 stipulated
a deletion program, encouraging the manufacturing of automotive components
locally. The growth of the automotive component industry has been substantially
accelerated partly by the deepening localization policy(deletion program) for fourwheel and two-wheel motor vehicle components since 1979 and 1980, and partly by
the foreign and domestic investment boom after 1988 (Sato, 1998:111). Over the
years as the mandatory deletion program processed, the imported contents in the
assembly industry have fallen on the one hand, and those of automobile and
motorcycle industry have risen on the other hand. The ratio of imported materials to
total material in the automobile component industry reached as high as 89 percent,
and in the motorcycle component industry 58 percent.
In April 1992 the government issued a decree stipulating that foreign
investments must have a divestment plan so that after a certain time-period majority
shares will be transferred by Indonesian nationals. This policy can be seen as an effort
by the government to transfer technology from foreigners to Indonesian nationals in
an indirect way. In 1993 the government of Indonesia launched a policy which
implemented an incentive system, where the development of automotive industry was
based upon decreasing or releasing import duty and luxury tax for those reaching
particular percentage of local content utilization in their production activity. It means
that the higher the local content utilized, the lower the duty and luxury tax paid.
In 1996, through President Instruction No.2/1996, the Government Regulation
No.20 and No.36/1996, Minister of Finance Decree No.82/199, and Minister of
Industry and Trade Decree No.31/1996, the Government of Indonesia launched the
national car Program which provided incentives both import duty and tax exemption
to the national car company which produced the national car with a certain level of
3
local content at particular years of operation. The company, The Timor Putra National
in a joint venture with KIA Motor from Korea then started building factories to
manufactured the cars in Indonesia, but meanwhile the cars were being produced
wholly in Korea and exported as a CBU car to Indonesia without of nay import duty,
and was claimed as a national car. The car also enjoyed special fiscal treatment that
the company should reach a local content requirement of 20 percent in the first year,
40 percent in the second year and 60 percent in the third year, which is in accordance
with the import duty incentive system ruled by the government through the 1993
regulation.
National Car Program policy led subsequently to protest and the case was
brought then to the Dispute Settlement Body of the WTO imposed sanctions to
Indonesia to reduce the import tariff rates on automobiles and forced the government
to open imports of CBU cars in June 1999, abolishing the incentive system based on
local content achievement. On June 1999, the Government of Indonesia launched a
new policy of automotive development where import duty is not linked to the
achievement of local content. According to that regulation, import duty for all
categories of automobile is 25 percent, except for sedan, which ranges from 35
percent to 50 percent depending on the engine capacity. The higher the engine
capacity the higher the import tariff rate.
In 1999, the government also launched deregulation measure in the
automotive industry regulating the role of sole agent (ATPM). Before the 1999
deregulation, brand holding sole agents (ATPM) enjoyed a central role in the
automotive industry and trade. ATPMs were recognized by the government as the
main player in the industry controlling import, production, distribution and exports.
ATPMs had the authority to name build a factory and handle the marketing.
However, with the 1999 deregulation, ATPMs were much of their authority. They
were no longer the sole player in the industry. Non-ATPM could now open car
assembling plants or import cars. In fact a number of ATPMs have lost control of
their manufacturing division and operate only as sales agent for cars produced by the
manufacturing division now controlled by their foreign principals.
After the 1999 deregulation measure, fundamental change has taken place in
the industry notably in the distribution and trade system. The change has also been
necessitated by the implementation of AFTA scheme in 2003 and development in
international market developments has prompted Japan to consolidate and restructure
its auto industry especially in Southeast Asia. The restructuring by Japan has its
impact on auto industry in Indonesia. Toyota, Daihatsu, Suzuki, and Hino for
example, have consolidated their factories in the country by taking control of the
manufacturing or production sector through acquisition of the majority share diluting
the share of ATPMs.
Japan’s automotive industry has rooted deeply in the country. Japan has
played the host in the country in the automotive industry. Toyota, Mitsubishi, Suzuki,
Daihatsu, Isuzu, Honda, Mazda, Hino, Subaru, Nissan Diesel have been as popular
and familiar in the country as in Japan.
Earlier there were fears that liberalization of trade will weaken the industry,
which formerly could rely on heavy protection by the government. However, it turned
out the industry has continued to expand as Japanese principals are quick to adapt to
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the change especially after the Japanese principals like Honda, Daihatsu and Toyota
took control of the majority shares in joint venture with ATPMs.
Since the new reformist regime under former President Abdurachman Wahid,
there is practically no industrial policy in the automotive sector. Though import tariff
for CBU and CKD cars are still high, there are no restrictions to imports anymore.
The results are that presently all kind of car brands can import including very
expensive cars.
C. Industry Performance Post Policy Adjustment
Car Production
After plunging in 1998 and 1999 as a result of the 1997 monetary crisis, cars
sales began to rise sharply. The market has fully recovered in the past two years.
Sales reached 345,416 units in 2000, but declined to 328,226 units in 2001 and to
299,257 units in 2002 or 41% of the country’s installs capacity. In 2003, production
scaled up again to reach 322,262 units or 46% of the countries installed capacity.
Increase has been recorded in the production of all types of cars. Most
impressive, however, was in the production of commercial cars of category I. After
plunging to only 43,156 units in 1998, and 69,454 units in 1999 production of cars of
category I rose to 216,654 units in 2000. In the same year production of cars of
category II rose to 29,108 units. In 2003, the production of commercial cars of
category I rose further to 242,535 units with category II 55,051 units.
Table 1.
Car Production by Type and Categories
1995-2003
Commercial Cars
Passenger
Year
Total
Cars/Sedan
I
II
III
IV
V
1995 274,924 48,020 18,051
6,079
628
39,839 387,541
1996 220,106 52,754 11,158
5,598
575
35,304 325,495
1997 266,743 49,958 12,771
4,081
624
55,102 389,279
1998
43,156
4,699
528
1,257
38
8,401
58,079
1999
69,454 10,435
1,812
1,287
65
5,974 123,244
2000 216,654 29,108
5,996
3,087
548
37,317 345,416
2001 197,502 40,458
6,592
1,931
467
32,237 328,226
2002 221,588 46,375
5,847
1,011
430
24,006 299,357
2003 242,535 55,051
1,528
403
1,030
20,897 322,044
Note: Category I - Gross Vehicle Weight 5 ton
II - 5 – 10 ton
III - 10 – 24 ton
IV - General Purpose
V - Gross Vehicle Weight > 24 ton
Sedan - Passenger Car
Source: Gaikindo/Data Consult
5
In 2003, Gaikindo made changes in the categories for cars. Formerly included
in the category of commercial cars, the types of 4x2 Toyota Kijang and Mitsubishi
Kuda cars are now included in the category of passenger cars. Passenger cars,
therefore, are made not only of sedan cars. Other categories are 4x4 jeeps and 4x4
vans, bus and truck/pick-up and double cabin (4x2/4x4) cars.
Cars Sale Continue to Increase Since 1999
After sharp fall in 1998, sales began to scale up in 1999 to reach 93,814 units
or increase 0f 60.9% and in year of 2000 sales roses further to 3000,000 units. In
2001, sales stagnated before rising 6% to 318,000 units in 2002 and then to 354,482
units in 2003. Meanwhile, exports totaled 37,519 units in 2003 including 35,481 units
by Astra and the rest by other producers.
In the first half of 2004, sales already reached 226,178 units. The Astra Group
accounted for 106,310 units of the sales. The sales performance in the first six months
of the year gave optimism that sales in the whole of this year would hit the 400,000
mark exceeding the previous peak of 386,691 units in 1997. Some factors
contributing to boosting sales in 2004 are credit system offered by multifinance
companies especially consumer financing facility. Besides that some banking
companies also offered consumer credit to facility buying the car by credit system.
Moreover, the launching of new products with cheaper prices before Rp. 100
million per units such as Toyota Avanza and Daihatsu Xenia, has also contributed
significantly to the country’s total sales of cars in 2004. Lately, a number of a new
products and model have been launched to attract buyers such as Honda Jazz and
Honda City by Honda Prospect Motor (HPM) and SLK variant by Daimler Chrysler
Indonesia. New models have also been launched by other principals including
Chevrolet, BMW, Volvo and Jaguar as well as Renault, which has made a
reappearance after long disappearing from the Indonesian market.
Table.2
Cars sale in Indonesia (Units)
Year
Commercial Cars Passengers/Sedan
Total
Cars
1997
313,476
73,215
386,691
1998
46,380
11,941
58,321
1999
82,802
11,012
93,814
2000
254,073
46,891
300,964
2001
264,334
35,226
299,560
2002
291,563
26,694
318,257
2003
315,704
38,778
354,482
2004:
January
27,483
2,851
30,334
February
30,807
3,164
33,971
March
36,361
3,923
40,284
April
36,623
3,218
39,841
May
36,870
3,085
39,955
June
38,591
4,202
42,793
6
January-June
206,735
19,443
Source: Astra International/Gaikindo/Data Consult.
226,178
Expansion fast by foreign company
Indonesia is the largest market in ASEAN and one of the countries of
destination for automotive investors. A number of foreign automotive companies plan
expansion to Indonesia such as China’s Great Wall Motor Co; Malaysia’s Proton
Holding BHd and Italy’s Fiat Spa.
Great Wall Motor Co. is seeking cooperation with PT Bharata to produce
pick-up cars and vans to be sold at a price of Rp 100 million per unit in the country.
The factory is too built in East Java using the brand of Bromo Great Wall.
Proton has even acquired the assembling facility of Bakri Motor/Ningz
Pacific. In additions, Proton and Tracoma Holdings Bhd, have established a joint
venture in Indonesia namely PT Proton Tracoma Motors (PTM) to assemble cars in
the country with an initial investment of US$ 8 million. Proton is set to increase its
sales in the country as well as in other ASEAN countries.
The Malaysian government has encouraged Proton to expand operation to the
country before Malaysia is to liberalize its automotive industry early 2005 under the
AFTA scheme. Until now Malaysia is still allowed under AFTA to provide protection
for its automotive industry by putting it in the “Excluding List” with liberalization
delayed until January 2005. Despite the protection, Malaysia already opens is market
to foreign product with a 5% excise duty.
Proton sedan has entered a number of foreign markets such as Britain, Iran
and Iraq before the Iraq War. Proton Holding Bhd targets to export 12,000 units of
Gen.2 model to Britain and other European countries until March 2005. Export to
Britain will be 1,000 units per month starting October. Therefore, 30% of its
production of Gen. 2 passenger cars which are produced in Tanjung Mali will be
exported. Its production will be increased from 4,000 per months to 6,000 units per
month and then to 9,000 units per month in 2005.
Meanwhile, Toyota and Suzuki will implement their projects to produce
International Multipurpose Vehicle (IMV) and ASEAN Multipurpose Vehicle (AMV)
cars. Toyota will produce IMV cars through Global Quality Project with an
investment of US$ 380 million. Indomobil already invested Rp 2 trillion for its AMV
project.
Earlier ASEAN has reached and agreement to equally distribute investment in
the automotive industry. So far only a few countries in this regions including
Thailand become the country of destination in automotive industry. The agreement is
expected to encourage foreign investors to also invest in other ASEAN countries.
Under the agreement ASEAN hopes to create integration in 2008, and there will be
competition among member countries. Honda produced by Thailand and Proton of
Malaysia will be free to enter the Indonesian market with 0% import duty.
Increasing Sole Agents (ATPM) after Deregulation in 1999
7
In 1999, the government launched deregulation measure in the automotive
industry regulating the role of sole agent (ATPM). Before the 1999 deregulation,
brand holding sole agents (ATPM) enjoyed a central role in the automotive industry
and trade. ATPMs were recognized by the government as the main player in the
industry controlling import, production, distribution and exports.
ATPMs had the authority to name build a factory and handle the marketing.
However, with the 1999 deregulation, ATPMs were much of their authority. They
were no longer the sole player in the industry. Non ATPM could now open car
assembling plants or import cars. In fact a number of ATPMs have lost control of
their manufacturing division and operate only as sales agent for cars produced by the
manufacturing division now controlled by their foreign principals.
After the 1999 deregulation measure, fundamental change has taken place in
the industry notably in the distribution and trade system. The change has also been
necessitated by the implementation of AFTA scheme in 2003 and development in
international market has prompted Japan to consolidate and restructure its auto
industry especially in Southeast Asia. The restructuring by Japan has its impact on
auto industry in Indonesia. Toyota, Daihatsu, Suzuki, and Hino for example, have
consolidated their factories in the country by taking control of the manufacturing or
production sector through acquisition of the majority share diluting the share of
ATPMs.
Table.3
ATPMs and Group
No.
Name of Company
Brand
1.
Astra Group
Toyota Astra Motor, PT
Toyota
Pantja Motor, PT
Isuzu
Astra Nissan Diesel Indonesia, PT
Nissan Diesel
Astra Daihatsu Motor, PT
Daihatsu Astra France Motor, PT
Peugeot
Tjahja Sakti Motor, PT
BMW
2.
3.
4.
Indomobil Group
Indomobil Suzuki Internasional, PT
Central Sole Agency, PT
Garuda Mataram Motor, PT
Nissan Motor Indonesia, PT
(Ismac Nissan Mfg, PT)
Indobuana Auto Raya, PT
National Motors Company
Auto Euro Indonesia, PT
Suzuki
Volvo
Audi, VW Caravelle
Nissan
Sangyong
Mazda, Hino
Renault
Krama Yudha Group
Krama Yudha Tiga berlian Motors
Mitsubishi
Imora Group
Honda prospects Motor, PT
Honda
8
5.
Other
Daimler Chrysler Indonesia, PT
General Motors Indonesia, PT
Grandauto Dinamika, PT
Hyundai Indonesia Motor, PT
KIA Mobil Indonesia, PT
Ford Motor Indonesia, PT
Java Motors, PT
Starauto Dinamika, PT
Car & Cars Indonesia, PT
Eurocars Chrisdeco Utama, PT
Timor Putra Indonesia, PT
Wahana perkasa Auto Jaya, PT
Source: Gaikindo/ Data Consult.
Mercedes-Benz, Chrysler, Jeep
Chevrolet, Subaru
Bentley, Daimler, Jaguar
Rolls Royce
Hyundai
KIA
Ford
Land Rover
Daewoo
VW
Porsche
Timor
Perkasa
Japan’s automotive industry has rooted deeply in the country. Japan has
played the host in the country in the automotive industry. Toyota, Mitsubishi, Suzuki,
Daihatsu, Isuzu, Honda, Mazda, Hino, Subaru, Nissan Diesel have been as popular
and familiar in the country as in Japan.
Earlier there were fears that liberalization of trade will weaken the industry,
which formerly could rely on heavy protection by the government. However, it turned
out the industry has continued to expand as Japanese principals are quick to adapt to
the change especially after the Japanese principals like Honda, Daihatsu and Toyota
took control of the majority shares in joint venture with ATPMs.
Traiff Reduction
The new policy (Deregulation 1999) was also restructuring import duty and
luxury tax tariffs and eliminated import barriers; strengthening automotive industry
structure through releasing import duty of raw materials for component industry.
Under the policy, which was effected beginning from 1 July 1999, import duties for
automotive and components are as follows :
Item
PMV
Trcuks
Buses
Engines
Body
Transmission
Remainder of 87.08
HS Number
87.03
87.04
87.02
84.07
87.08 29
87.08 50
Highest (%)
80
45
40
15
70
15
15
Lowest (%)
45
5
5
15
40
15
0
D. Conclusion
9




The opening of automotive market by Policy Deregulation in 1999 was giving
positive gestures to aspect such as alternate choices to the consumers, while
competition of CBUs against local ones forced industries to face and carry out
hard competition.
The import liberalization policy has also opened the domestic market to foreign
cars. Now consumers have a choice of a far broader range of brand-names in a
wide variety of types and models.
By deregulation measure in 1999 in regulating sole agents (ATPM) have been
giving the opportunities for non ATPM to open car assembling plants or import
cars. In fact a number of ATPM have lost control of manufacturing division and
operate only as sales agent for cars producers by manufacturing division now
controlled by their foreign principals.
Deregulation in Automotive industry in 1999 had impacted to production, sales,
tariff reduction and competition in domestic market.
E. Recommendations
Referring to this case, the recommendations to the government is just keeping this policy
or in other words please the government do nothing.
Reference
________“Automotive Industry to See a Golden Age Again”. Indonesian Commercial
Newsletter, No.393. PT. Data Consult Business Surveys and Reports, Jakarta
Augusts 2004.
________ Report of the First APEC Automotive Dialogue Meeting, Bali Indonesia 26-27
July 1999.
Okamoto Yumiko and Sjholm Fredrik. “Protection and Dynamics of productivity
Growth: The Case of Automotive Industries in Indonesia”. Working Paper
Series in Economics and Finance No.324 June 1999.
Tarmidi. T.Lepi, “Indonesian Industrial Policy for the Automobile Sector with Focus on
Technology Transfer”. Paper presented at Workshop on New Global
Networking in Auto Industry: The Effects of Technology Transfer-in case of
Japanese Transplants in East Asia and Europe. The International Institute for
Asian Studies in Leiden, the Netherlands, 2001.
Setiono Mochamad. The Development of the Automotive Industry in Indonesia. Paper
presented on Seminar, Jakarta 2001.
_______ Indonesia Motor Vehicle Market Overview. Jakarta, 2003.
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