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Dad, Can I Have The Keys To Indonesia's Auto Industry? (Int'l Edition)


International -- Asian Business: INDONESIA

DAD, CAN I HAVE THE KEYS TO INDONESIA'S AUTO INDUSTRY? (int'l edition)

The Suharto family is poised to take over Indonesian carmaking

It's a bizarre saga of financial intrigue, national ambitions, and dynastic politics. The main elements: a circle of secretive ethnic Chinese tycoons, an Indonesian conglomerate, a plan by the sons of Indonesian President Suharto to build cars, and some of the biggest companies in Japan and South Korea. The episode offers insights into Indonesia's unusual mix of nepotism, industrial policy, and behind-the-scenes ways of doing business.

In early October, shares of Astra International, one of Indonesia's most powerful conglomerates, jumped after Mohamad "Bob" Hasan, a golf partner of Suharto and patriarch of a plywood cartel, announced he was buying shares. Now estimates are that Hasan's stake in Astra has reached 20%--partly through an investment company he runs called Nusamba, in which Suharto controls an 80% position. Astra officials say Hasan and his company, and a few tycoons close to Suharto, now have a combined majority stake in Astra and will take management control early next year.

This might be just another takeover, except for the involvement of Suharto's family and Astra's joint venture with Toyota Motor Corp. to assemble the Japanese company's cars in Indonesian plants. Already well entrenched, Toyota-Astra Motors presents a formidable hurdle to a national car project run by President Suharto's youngest son, Hutomo Mandala Putra, known as Tommy. He got his father's approval--and substantial tax breaks--to set up his car plan with a partner, Kia Motors Corp. of South Korea. Eventually, Tommy intends to assemble in Indonesia, and not just sell Korean imports as he is currently doing.

CLEAR LEAD. Industry insiders say Suharto engineered the takeover to help his son benefit from the expertise of Astra and Toyota. "Nusamba could not do this without specific instructions from Suharto," says a senior Astra official, who spoke on condition of anonymity. Astra CEO Theodore P. Rachmat was already ostracized from Suharto's circle for refusing to manufacture the national car. He is to be demoted. "Astra can no longer refuse to assemble the [national car]," says the Astra official. Tommy refused requests for interviews, but an aide quoted him as saying he had "no connection with Astra International." Hasan did not respond to requests for an interview.

Astra has a clear lead over Tommy's efforts to build a national car. Astra has 73 subsidiaries, which include Indonesia's largest car-parts factories and auto- assembly plants and distribution and service networks. Astra dealerships are far slicker than anything Tommy's company has, with plate-glass display windows and marble floors more fitting to Tokyo than to Jakarta. Toyota-Astra Motor assembles Toyota Corollas and Kijang minivans and manufactures engine blocks for export to Japan and the Philippines. In 1998, a new Toyota-Astra plant in West Java will start assembling 50,000 sedans per year.

The takeover is Tommy's last hope to acquire manufacturing and distribution facilities fast. By his father's decree, he has less than three years to make good on his pledge to start making the national car--paradoxically named "Timor" after the region split by a separatist movement--with 60% Indonesian-made parts. Now he's simply importing Kia's Sephia sedan from South Korea under a special duty-free status and riveting on the Timor logo. Some 40,000 units are due to arrive after Nov. 15, yet Tommy's distribution network is pitifully small. One of the seven mom-and-pop showrooms in Jakarta is a windowless storefront near a foul-smelling canal. In it, a demure Indonesian saleswoman sits with a lone telephone--a sharp contrast to the Astra dealerships.

Suharto's other son, Bambang Trihatmodjo, could also benefit from the Astra takeover, industry sources say--if Suharto allows him access to Astra's network. Bambang has not been on speaking terms with brother Tommy since his own project, a joint venture with Hyundai, failed to win national car status despite the fact that his assembly plant was already operating.

Meanwhile, a Toyota spokesman in Tokyo says the Japanese carmaker is powerless to prevent the Suhartos from doing as they please, as Astra controls 51% of the joint venture. "If they said, `We're going to take this plant to make the Timor,' there isn't much we could do," says the spokesman. And that's precisely what the Suharto family's plans are, to hear Astra officials, brokers, and fund managers tell it. Hasan and other ethnic Chinese tycoons are said to owe Suharto favors for the monopolies he has granted them in every industry from plywood to cement to clove cigarettes.

TOYOTA NON GRATA. Other motives are behind the Suhartos' moves. The family is preparing for the eventual death of the 75-year-old patriarch. "Suharto is getting old, and he wants to invest the family's money into a legitimate business that he can depend on," says a Japanese source in Jakarta. There is also strong anti-Toyota sentiment at the highest levels of government--in part because Toyota executives have limited the export of Astra-Toyota's popular Kijang minivan, which is made with local parts, to markets where it does not compete with other Toyota assemblers.

In addition, existing controversy over the national car program may be partly to blame. Japan and the U.S. have taken a complaint to the World Trade Organization, charging that Indonesia is protecting its auto industry by charging high tariffs on car imports. If the WTO rules against the national car plan as it's structured with the Koreans, Astra could shelter Tommy's carmaking ambitions under the Toyota network.

While Toyota may be powerless to prevent the takeover, informed sources say it may prove less than cooperative with its Korean rivals. "The family is being too naive," warns a broker in Jakarta. "The Koreans and the Japanese can't work together. Their car parts and their principles don't work together, and the two countries don't like each other." True, the Suhartos may not know as much as they should about manufacturing. But they are masters at amassing power and influence.By Michael Shari, with Edith Hill Updike, in Tokyo


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