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Korean carmakers prepare plans for AFTA

Jakarta Post

18 January 2005

Korean carmakers prepare plans for AFTA

Novan Iman Santosa, The Jakarta Post, Jakarta

South Korean carmakers Hyundai and KIA are considering setting up a production base in Southeast Asia to take advantage of the ASEAN Free Trade Area (AFTA).

"Hyundai and KIA headquarters will finalize the strategy for ASEAN in the coming months. I expect it to be announced sometime in June," Hyundai and KIA corporate marketing general manager for the Asia Pacific Lee Soon-nam said on Friday. "Until then, I cannot reveal any details."

Major automakers have set up facilities in Indonesia not only for the domestic market, but also to export to Association of Southeast Asian Nation member countries.

With a minimum local content of 40 percent from any ASEAN country, a carmaker is entitled to a 5 percent import duty for the member countries of the grouping.

This scheme has been employed by Japanese market leader Toyota, which has focused the production of the multipurpose vehicles the Kijang Innova and Avanza in Indonesia, but has concentrated production of sedans and pickup trucks in Thailand.

Similarly, Honda assembles its Honda CR-V sports utility vehicle (SUV), Stream MPV and Jazz compact car in Indonesia. The Stream has been exported to Thailand, while Indonesia imports the City sedan in return.

German automakers BMW and Mercedes-Benz also have established assembly plants here, allowing for more affordable vehicles.

BMW assembles its 3 Series and 5 Series here — except for the BMW 330i, which is assembled in Thailand. Indonesia, in return, exports the BMW 530i to Thailand.

Another premium German automaker, Audi, is reportedly considering a regional production base to take advantage of AFTA.

PT Kia Mobil Indonesia, a local subsidiary of KIA Motors Company, locally assembles the Carens II MPV and Pregio van at its plant in Pulogadung, East Jakarta.

Lee from Hyundai and KIA acknowledged that Korean carmakers were late compared to Japanese companies in responding to AFTA, saying Korean companies had their focus elsewhere.

"Our headquarters in Seoul decided that we would set our focus on the U.S., China and Europe first, then we would think of Southeast Asia. We just can’t do everything at the same time.

"We have and are constructing plants in Alabama, outside Beijing and in Slovakia, respectively."

Lee said the ASEAN market was huge, with an estimated production of three million cars by 2010. KIA hopes to have some 10 percent of the market share by that time.

"Larger volume will certainly reduce costs and prices," he said. "Indonesia, however, has to work hard to woo more investors to the automotive industry, just like what Malaysia and Thailand are doing."

Poor infrastructure, legal uncertainty attributed to regional autonomy and the absence of tax incentives have been blamed for declining foreign investment not only in the automotive industry but also in other industries.

Thailand has better infrastructure than Indonesia, making it the center of the automotive industry in ASEAN, while Malaysia has lowered its import duty.

"It is very crucial that the government design some benefits to be able to compete with Malaysia and Thailand," said Lee. "Otherwise, these countries will take the lead."