| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Can Carmaker Astra Pull Off This U-Turn? (int'l edition) The carmaker is moving from production to importing For Rini Soewandi, it should have been a triumph. The CEO of Astra International, Indonesia's largest car manufacturer, was fresh from brow-beating creditors into rescheduling $1.14 billion of debt on soft terms. She was in a Jakarta showroom for the roll-out of a trendy new Daihatsu Taruna--a five-seat sport-utility assembled by Astra. Then came the shocker. ''The Taruna will be our last new product,'' Astra Director Rudyanto Hardjanto told BUSINESS WEEK. Astra's Toyotas, Isuzus, Hondas, Daihatsus, and BMWs once commanded 90% of Indonesia's car market. The company earned stellar profits by assembling these makes, some with up to 40% locally made components. But after a near-death experience during Indonesia's economic crisis, Astra lost $173 million on sales of $1.2 billion last year. Now, a tariff structure introduced in July strips away the protection Astra enjoyed against components from within the 10-nation ASEAN Free Trade Area. Soewandi's response to the sudden opening of Indonesia's car market? Astra has stopped all investment in manufacturing, once its core business, and next year will turn to importing and selling small-engine sedans. The company is lucky to have survived the crisis at all. Car-assembly businesses run by two sons of Suharto went under even before the former president was deposed last year. In 1996-97, Astra borrowed heavily in dollars to invest in component manufacturing. With its income in rupiah, the company was pushed to the wall by the currency's crash. Then came another body blow: As consumer spending shrank, the car market fell 85% from its pre-crisis peak of 400,000 units a year. Astra has since laid off 25,000 workers--almost 25% of its workforce. And the deal Soewandi wrenched from creditors in more than six months of fierce negotiating now gives her time to remake her company. It spreads repayments over 7 1/2 years instead of 5 and defers overdue interest. ''Three years down the road, Astra will be much leaner,'' Soewandi asserts. Now, instead of making 1.5-liter sedans, such as the Toyota Soluna, Astra will import them from Thailand. With deep poverty and a population of 200 million scattered across 17,000 islands, Indonesia simply can't support an auto industry as well as its smaller neighbors can--chiefly Thailand and Malaysia. The new trade regime worsens the competitive disadvantage. ''The tariff changes make it easier to import small cars than to make them here,'' says Hardjanto, who runs Toyota Astra Motor, Astra's largest manufacturing subsidiary. TRICKLING DOWN. Still, the decision couldn't have been easy. By the time the crisis spread through Indonesia, Astra had sunk $800 million into component production--and planned to commit $300 million more. Astra's plants will remain open, chiefly to produce hard cash from a trickle of exports. The bold change of direction just might work. Astra already has Indonesia's largest dealer and service network. With the market rebounding, says Fred Thomas, head of research at ABN-AMRO Asia Securities (Indonesia), Astra could net $200 million on $1.7 billion in sales this year. As to the future, Soewandi will have to stay several jumps ahead of savvy foreign players who are eyeing the same niche as Astra. General Motors Indonesia, for instance, anticipating an 80% rebound in the car market, is now preparing to boost local assembly of the $29,000 Opel Blazer, which competes directly with the Toyota Kijang, one of Astra's big sellers. ''We're very bullish,'' says John Tuttle, managing director of GM in Jakarta. Indeed, GM recently bought out Probosutedjo, its local partner and a half-brother of Suharto. With inflation at zero and the economy set to grow as much as 8% next year, that may be smart business for GM. But even 80% growth will put the market back to a quarter of its former size. It's one of the ironies of Indonesia's recovery that Astra must concentrate on survival. Still, lowered sights are better than none. By Michael Shari in Jakarta _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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