President Wahid of Indonesia Visits Hwasung Plant of Kia Motors
- Talks of resuming the joint national auto project between Kia and Indonesian government
President Wahid of Indonesia and his suite paid a visit to the Hwasung plant of Kia Motors on February 11th, and had an on-the-spot look at the production lines of Sephia and Sportage. Along with the Minister of Finance, Industry, and Economy, Mr. Kwik Kian Gie, and five other ministers, major economic figures, and a group of Indonesian reporters, President Wahid headed a total of 70 attendants and arrived at the plant at 11 o’clock. Under the guidance of Chairman Mong-Koo Chung of Hyundai-Kia Motors, the party visited the plant for about an hour and had luncheon with the senior management. At the luncheon meeting, Chairman Chung addressed the party by commending that the joint venture project by Kia Motors and TPN will become a cornerstone for mutual cooperation between the two, which will create employment and boost technological cooperation. By expressing regret over the recent troubles with the joint project, Mr. Chung wished to re-launch the project actively as the structural adjustment by IBRA (Indonesia Bank Restructuring Agency) is finalized and the government stance on the project is confirmed. Selected as the partner for the National Car Project in Indonesia back in 1996, Kia Motors established Kia Timor, a joint company between Kia(30%), TPN(69%) and Indauda(1%) with an authorized capital amounting 100 million dollars, in order to produce Sephia locally as the national car of Indonesia. In February 1997, the company began constructing a plant with a size of 10 million square yards near Jakarta on a land site of 1 million square yards. As a first step, the company planned to produce 70,000 cars annually by 1998, and move on to the second step by expanding the annual production to 120,000 by 2000 as well as diversifying the types of vehicles. The Indonesian government offered a special offer of eliminating tariffs under the condition of producing more than 60% of car equipments with domestic products within three years. However, after a 50% completion of the factory and an 80% completion of the facilities, the joint project was brought to a halt due to the bankruptcy of Kia and the currency crisis that struck both Korea and Indonesia. Furthermore, the tariff benefit was also abolished after growing disputes at the WTO.
Indonesia has a population of 210 million ranking it the fourth in the world with huge market potentials. Although the annual production capacity is 730,000 vehicles as a whole, most of the production relies on CKD assembly and the overall rate of operation hovered below 8% with the annual production in 1998 reaching 58,800 vehicles. Furthermore, while there are 19 assembly companies launching 27 brands, more than 90% of them are joint assembly companies with Japanese automakers. Meanwhile, the purchasing class of automobiles is concentrated on the upper 10% of the whole population. As for the market size, the market shrank rapidly after the financial crisis from 386,500 vehicles in 1997 to an estimated projection of 115,000 vehicles in 2000. The market is only expected to recover its pace of 1997 by the year 2003.