HIGH PRICE VEHICLE IN INDONESIA

PRELIMINARY

Today, transportation is one of significant infrastructure of life. As being in city living or just in suburban, transportation is becoming a matter of an important fact. How can we imagine our daily activities without transportation, it will be quite difficult for us. Having been such important and significant thing in our business, then transportation should be carefully and fully care, especially by our government. Government together with their people and sources must pay attention to this case. Otherwise, it will create so many problems and impact in domino leap. Our government, to mention wider, our country is now developing its all resources to achieve the goals of society wealth. To achieve this goals are not simple matter. There has been needed all of the resources to support the goals. Infrastructures are becoming one of the basic things in this effort. As having mentioned above one of the important of infrastructures is transportation. In addition, vehicle will be the motor of transportation. Vehicle is the soul and the core of transportation.

To make focus on this analysis, I am trying to describe the matter of the transportation subordinate, namely automotive industry in this country. Why it should be described this industry, because in my opinion this industry should be far better in price and quality than it is today. Of course if we make a benchmarking against other countries like Malaysia and Korea. Yes, I am discussing about the vehicle like my car, your car or any other car on the road. I am trying to analyze from the point of ethical business view. Ethical business is relating to what it should do or not should do. What the thing is really bad or good. The ethical business against the automotive industry is why today the car price is even becoming so higher than its price in any other countries. Of course it is not apart from other condition and role like local industry, principal and government. I propose the car price should not be so expensive if the automotive industry run and proceed properly and in right track of way. So it might be arise a question, is it the industry doing such cheating. Well, I am trying to write down the narration as below page.

THEORITICAL BASE

Indonesia was sited in the Southeast Asia, one of the biggest country around and has many resources either human and or nature resources. No other countries in the world not ever been familiar with this unique country. The country consists of so many races, tribes, culture and religion inside. It is having so many beautiful places, landscape and sea as well.
The term vehicle1 is especially formal a thing such as a car, bus etc that used for carrying people or things from one place to another.
While the term of price2 according to Longman Dictionary is the amount of money for which something is sold, bought, or offered.

ANALYSIS

It might be not we all know that Indonesia automotive industry began around the end of the year 19203 . So it had been more than eight decades since then. Ian Chalmers wrote the car production began the end of 1920 when General Motor Company built a truck and bus assembly near port Tanjung Priok. It was becoming more important against Indonesian economic nationalism since 1949 as one of first project to build NV Indonesia Service Company.
Automotive industry was entering such explosive growth in the middle 1970, all the vehicle that imported now it succeed in assembling locally and position Indonesia in first rank in South Asia and seventeen in the world.

In the year 1969 automotive industry in Indonesia4 was the smallest among the five countries of ASEAN, by producing only 14 percent of all regional market. In the 1976 this industry was becoming the biggest covering 33 percent from 230.800 units produced. This figure jumped into 46 percent in the 1982 and doubling from the figure of Malaysia production that was being the second.

To complete the picture, now let see one of automotive player in Indonesia. In Astra International background3, in 1957 it had continually widened its scope of business and investments and today PT Astra International Tbk is a public company with six business divisions : Automotive, Financial Service, Heavy Equipment, Agribusiness, Information Technology and Infrastructure. Over the course of its development the company has formed strategic alliances with reputable International Corporation in its efforts to expand business opportunities. Listed on the Jakarta Stock Exchange (JSX) and Surabaya Stock Exchange (SSX) since 1990, the company’s market capitalization as at December 27, 2002 stood at approximately Rp. 8.3 trillion with 4,278 Shareholder. The Astra group employed approximately 90,000 people throughout Indonesia.

I think some facts above either the beginning of industry and local industry are easy to understand that Indonesia started automotive industry very long ago and even the biggest one in Southeast Asia. Indonesia started earlier than many other countries like Malaysia and Thailand. At that period this country still have so many resources either human, capital and or nature ones. These resources are actually being the foundation to develop the industry forward.
Human resources are other supporting to speed up this country from exploited country toward developing country. In automotive industry there are some stakeholder involved likely the local industry, government, principal and the market or customer. From the point of local industry view there are many reason for developing automotive. It could be business reason, economic reason and nationalism reason. By mastering and designing own vehicle, this country shifting from traditional toward modern one. So, there are a lot of motivations and support that industry should finally success in the sake of stockholder and stakeholder as well.

Government as being a regulator and facilitator should support and together has same nationalism mission. Government should prove and show the world that not only finding its independence against colonialism but also having ability to develop the industry. However the government really has more and widen mission than the local industry has. Government should care and pay attention not only on industry but social, economic, culture and stability as well. From the economic matter, Government is concerned about collecting taxes over all the industries. Taxes have many strategic reason and purpose. It is the media of government revenue and further it could be protecting local industry against foreign competition. Automotive industry is burdened so many taxes because of consideration of producing the luxury object.

At least there are some kinds of taxes charging over likely import duty, income tax, value added tax, and luxury tax. This additional burden of cost impacts the local industry into output price. As we all know from the first time local industry assembled the vehicle, the price of car is very high. Some cause is due to this tax charge and the other could be the developing cost and or so forth.

Let us see the point of principal view or the country having automotive technology like Japan, United States and some of Europe Countries. Principal is really entrepreneur that concern to maximizing profit and avoid losing. Whatever they have mission to develop industry but indeed the profit is the best mission. At the first time, principal support local industry by developing and engineering. But later, they intend really not to transfer the technology of industry. Any parts needed in this industry should be imported from their country. Even it is not rarely local industry could produce the same part but rejected by them finally. However the principal not entirely honest to support local industry developed. They still emphasize on their interest and profit oriented. This impact the transfer of technology really never fully happened.

Furthermore the information that is taken from the web describing the condition and the fact of one automotive player in Indonesia as local industry. From the company profile we could see they expand and diversify the market. Their organization covers from automotive to financial business. As market of vehicle in Indonesia is becoming oligopoly market then it is believed they got so many profits on it. But where do the profit go is difficult to answer. Is the profit from auto industry fully allocated to developing its vehicle industry or to expand other business unit. If they spend the profit on engineering, researching, outsourcing and developing then why the local content is low and vehicle price is getting more expensive. That is why vehicle is becoming the luxury thing in Indonesia. There are so many markets of people demanded the car, but the more expensive price makes them unable to buy. Comparing to other countries like Korea, Taiwan, Singapore, Malaysia and Thailand, the car price in Indonesia is the highest one.

CAR PRICE TABLE (*)

Pricing History (million rupiah) Increase
No. Brand 1996 1997 1998 1999 2000 2001 2002 2003 7 Years Yearly
(%) (%)

1 BMW 318 111,5 112,5 186,5 242,0 375,0 390,0 395,0 423,0 279 40
2 BMW 528/530 230,0 295,0 474,5 607,0 637,0 912,5 787,5 815,0 254 36
3 BMW 730/735 385,0 380,0 718,0 816,0 935,0 937,0 1,885,0 390 56
4 Daihatsu Espass 23,8 27,3 38,2 52,8 76,9 91,7 94,8 298 43
5 Taft GT 61,5 61,2 96,0 272,5 286,3 366 52
6 Feroza/taruna 37,8 38,4 48,5 87,8 120,4 143,0 148,4 148,4 293 42
7 Ford 2.0 92,5 89,5 130,0 177,0 225,0
8 Ford Laser 1.8 70,0 69,5 111,0 160,0 185,0 262,7 275 39
9 Hyundai Accent 48,9 48,7 76,0 105,0 120,5 148,0 143,8 143,8 194 28
10 Honda Civic 84,5 83,0 180,0 228,0 264,0 266,1 267,8 217 31
11 Honda Accord 108,5 107,0 220,0 329,0 344,0 368,0 371,4 354,7 227 32
12 Isuzu Panther Std 40,5 39,5 57,5 79,2 100,5 154,3 148,0 156,3 286 41
13 Isuzu Panther Hi Gd 46,3 47,4 81,8 131,3 145,5 184,0 186,5 180,0 289 41
14 Jeep Cherokee 120,0 116,0 225,0 280,0 670,0 770,0 793,0 693,0 478 68
15 Land Rover 93,3 500,0 845,0 919,0 885 126
16 Range Rover 1,200,0 1,315,0 1,494,0
17 Mazda Lantis 323 79,0 76,0 125,0 146,9 249,0 215 31
18 Mazda 2.0 / 2.5 108,0 101,0 248,0 267,8
19 Mercedes 180/230/240 142,0 134,7 187,9 349,0 519,0 539,0 773,0 825,0 481 69
20 Mercedes E320 240,0 343,0 592,0 799,0 1,001,0 1,219,0 1,280,0 1,276,0 432 62
21 Sportline 325,0 750,0 814,0 842,0 159 23
22 Jip 300GE 285,0 430,0 701,5 847,3 964,9 898,0 215 31
23 Mitsubishi Galant 112,5 112,5 215,0 269,0 307,5 326,0 360,0 327,0 191 27
24 Mitsubishi Lancer 76,5 82,0 140,0 181,0 201,0 228,0 256,0 255,0 233 33
25 Mitsubishi T120 21,5 23,0 31,0 43,0 65,0 77,0 79,0 267 38
26 Pajero 165,0 170,0 295,0 685,0 800,0 385 55
27 Nissan Sentra 72,5 72,5 248,5 243 35
28 Nissan Terrano 85,3 95,5 93,0 285,0 225,0 256,5 259,0 260,5 205 29
29 Peugeot 405/406 89,0 100,5 191,5 292,5 294,0 317,0 314,5 253 36
30 Peugeot 306 69,5 67,5 134,5 178,0 211,0 212,0 176,5 154 22
31 Suzuki Carry 23,0 24,5 39,5 52,6 61,5 77,0 80,0 83,2 262 37
32 Esteem / Baleno 54,3 48,7 100,0 115,6 127,5 148,0 152,1 160,0 195 28
33 Sidekick 44,7 47,5 77,5 99,2 114,5 120,0 123,0 123,0 175 25
34 Katana 28,8 27,8 45,0 62,3 74,5 82,5 86,7 87,0 202 29
35 Kia S515/rio 37,8 48,8 55,5 73,9 135,0 149,9 136,2 136,2 260 37
36 Toyota Crown 203,4 203,0 348,3 605,5 609,4 921,2 876,9 873,8 330 47
37 Toyota Corona/camry 108,1 107,2 166,9 376,5 300,0 330,8 335,8 336,0 211 30
38 Totota Corolla 81,3 80,9 166,4 228,7 232,0 278,5 284,8 279,8 244 35
39 Toyota Sarlet/soluna 54,2 53,5 84,8 140,3 156,5 159,8 153,8 184 26
40 Toyota Kijang SX 33,0 30,7 48,0 79,3 91,9 104,8 107,7 108,3 228 33
41 Toyota Kijang LGX 45,0 45,0 79,2 135,6 149,3 166,3 169,9 171,5 281 40
42 Toyota Land Cruiser 174,0 198,0 368,4 632,4 697,3 1,316,7 1,332,7 1,362,0 683 98
(*) Automotif newspaper 1996 - 2001 and magazine 2002 - 2003

From the above table We can get the example of car price increase of the most car selling in Indonesia namely Toyota Kijang, one of vehicle line model produced by Toyota Astra Motor is priced 33,0 million rupiahs for model standard in the year 1996, but if you now glance at price list of the same vehicle, its price will be 108,3 million rupiahs. It is 228 percent increase within 7 years and the yearly increase has been 33 percent, much higher than national inflation rate. Second example may come from the same line but higher specification namely Kijang LGX. Its price is 45 million rupiahs in the year 1996 and jumps toward 171,5 million rupiahs in the year 2003. So the increase has been 281 percent and the yearly average is 40 percent up. That phenomenon is such unrealistic case and rather outstanding difference among the most industry in Indonesia.

Further, from the table we understand that from 42 models around, the roughly increase will be 154 percent up to 885 percent, and the yearly average within 22 up to 126 percent. Why the higher explosion of price happen in automotive industry and not in any other industries. Let arrange the benchmarking against other industries, then we will know the automotive industry contributes high jump of price and create high cost economic at finally. This is not simple question to comprehend and answer. But as being consumer, we do not abandon to curious and ask for little bit fair price.

Again we are reviewing local industry as a main player of this imbalance situation. They are given such long time to develop. It was more than eight decades going by and what the condition is what we are witnessing today. One thing is clear, they got a lot of bundle of profit from selling vehicle but they do not really design the industry. So, where is the profit really allocating. If the profit then spends to make industry shifting from assembling into real manufacturing, then it will become more efficient. In automotive industry we understand that parts and materials coming from local industry called local content and from foreign industry called import content. In this case, parts and materials of import generally bought from principal country to where the headquarters was stationed. Let us come back to principal mission and orientation that whatever they intend to support local player but always the profit and economic variable is most becoming their priority. The history and fact are noted that no such other kindness country will transfer technology voluntary and charge no price. This technology represents years of research and develop that spend a lot of cost, effort and time. It is natural that high technology does not freely transfer or just submit to local industry, but it should be researched and developed. This is the main concept and paradigm that other countries even prove this fact. South Korea, Malaysia and China are the ones who succeed in transferring the technology from their principal.

Case in Indonesia, the local industry player that usually called Agen Tunggal Pemegang Merk (ATPM) like Toyota Astra Motor and Indomobil Suzuki International are generally dreams of voluntary gifted automotive technology by the principal. They spend long years for assembling the industry, they are assembling and distributing, but that is all, not happen the miracle of developing deeper side of industry. The right term to call them is likely just a trader, only trading and no industry oriented. They fail to increase the local content into the product. They argue some reason like high dependence of principal and government tax burden. They do not have such really mission campaign from the beginning they should develop the automotive industry not only for business purpose but for nationalism reason as well. They enjoy distributing, trading, and accumulating higher profit while never realize and fight against consumers concern. Consumer nature is just procuring the goods at the fair price and quality. Meanwhile, the price never compromise to them. At the other hand, no other choice is even given to consumers. Import car like what we call Completely Built Up (CBU) is even far higher than local assembly car or what it calls Completely Knocked Down (CKD). Government always keeps on charging the import unit with very high taxes level.

Another illustration is interesting to benchmark, in 1996 when crisis not yet to come, the price of Toyota Corolla was only USD 10,000 in United States. The same car is assembling in Indonesia costing 81,3 million rupiahs. The USD rates at that time was 1 USD = 2,500 Indonesian Rupiah, so car price in USA equal to 25,0 million rupiahs (only less than one third). But if really you prefer to import car in completely built up then at- that time you must pay almost the same local price or more than three times increase. That is really no even choice for consumers in Indonesia. This market situation is running for years and no other power even change the market distortion.

Is it unfair if then we blame to local industry that not optimally fights against principal to make industry little bit fairness. Why as having been an industry the local is giving up and either being controlled or driven by principal. The disadvantage of this market situation is bold clearer that there has been capital out-flow than capital in-flow. Generally we can look at the trading done by Japan and Indonesia Government, which country consume higher surplus trading, we all know that Japan having this surplus trading.

Well, let us have a look at the principal concern. They are considering Indonesia as a big market and partner. Then they support to firstly build up the industry. So until the born and existence of ATPM is representation of the agreement between local and foreign principal. Just imagine, local industry only holding the brand but never let them develop on their own. The principal is handling the engineering and manufacturing control. The figure or portion of local and import content are set up very slowly. By arguments of quality and specification, import parts and materials are a must. This imbalance content that impacts the price of vehicle produced is becoming higher even compare to the one in principal country. Why it happen for very long times and no other institution care.

As mention above the principal never let local industry grow up. Whatsoever local industry develops to produce the parts and components but always rejected by them then. They argue on the name of quality and specification. They make local industry dependant and pretend like a business partner.

Let us try to describe the further fact. I have a friend working in Toyota Astra Motor. He has been working for couple years. He is a senior engineer. We are talking about one component used for assembling car. Just call component the gear. This gear must be imported from Japan to assemble the car in local Toyota Astra Motor. For the reason of increasing local content then local industry search some local vendors to produce one. After getting the right vendor then the gear is set to manufactured. Till the end of finishing, component is exactly the same either by quality or specification conforms to the specification one import from principal. But what is the consequence, the principal again reject this part. Confusing this scheme and unfair procedure then engineer team by chance taking the gear from principal and make little manipulation on the printing and try to submit to them. Could you guess the response, the principal again reject it innocently. They reject their own made component namely gear. So, what to conclude, any kind of parts or components produced by local industry will be rejected by principal no matter how good quality of the parts.

How is about the government role. Having been a regulator and facilitator, so they should support the development of local industry. But what in the field and fact, government is busy to collecting the tax and exceeding protectively them as local industry that never been mature. This automotive industry is treated as infant industry at the beginning but never change the policy for many decades. Government act over-protection the local player against imports one by setting up the higher taxes level. Meanwhile, they charge the tax over parts and components as well. Government has not enough vision and mission to future of what auto industry will design like what. They are protecting and at the same time they pull in the high taxes. Government has exploited the auto industry and makes them being cash machine. Government never realizes this discriminative policy and creates high cost consequences. By setting up high taxes will then impact higher selling price. This high selling price will impact domino effect. Other fields of industries are figuring out this high cost into their product output. This long chain will even run among the market and reduce down the level of competition.

At final, stakeholder we are going to discuss is a market or customer. In the oligopoly market like automotive, consumer as represent market be provided not many choice. As above preliminary that transportation is one of the essences then the need of vehicle is really high and urgent. Market is really open wide and industry has big chance. According to newspaper nowadays, in Indonesia there have been around 7 millions of vehicle. Just compare to country landscape having more than 2 million kilometers square and more than 220 million people, so the percentage of vehicle distribution and density is still very low likely less than 3 percent. By yearly average volume selling of 300,000 units vehicle we know most of all vehicle has age more than 5 years old. If we put a simple assumption by reducing vehicle price a half, we will predict the volume selling will be drastically increase. But why they do not do this price reduction. We do not know exactly the arguments. Probably they already enjoyed the stable profit and nothing to do with consumers concern anyway.

CONCLUSION AND ETHIC POINT

I believe the vehicle price in Indonesia is one of the worst in the world. At the beginning we start industry earlier than other countries but finally there has been such bad condition we are facing today. How do many people have the ability to procure new car. Even second car, not many of us can provide. Only what percentage from the hundred millions of people is about to own the car at their home.

In developing the country worldwide, transportation is such more important support. Especially the existence of vehicle could speed up the activities and impact more productivity. If vehicle belonging and density is wider spread distributed, it will be very good basic to shift our country toward developed country. In fact, how people might have a car while the price is such outstanding higher and beyond people hand to achieve.

Why is car price so expensive and untouchable by the most of people? This is really very complicated thing to analyze. This is such an unfair market elsewhere. There are many player and role in this cycle. Local industry is the one to assemble the vehicle. Then, government is being the agent of facilitator and regulator. The principal of technology belonging originated from foreign country, mainly having their own economic and nationalism concern, but always intend not to transfer technology.

In my opinion, for the side of government, principal and local industries are lack of ethical business. They utilized many resources and even tend toward capital outflow much more than capital inflow. They are not fighting against the sake of consumers and other certain stakeholder concern. Probably they did business to maximize stockholder wealth, but not for the sake of stakeholder. Most profit portion is dedicated for the principal that is really a foreigner. Consumers are forced to share responsibility of high cost economic arise by their behavior. Until today, we are as being consumers or market just even not able to do much to correct the situation. We have no other choices and are just provided only this funniest oligopoly market, and paying much more cost price than it should be.