JAKARTA: The cheapest car wins

China exports an inexpensive minicar to a nation dominated by Japanese brands

It was Drugs Awareness Day. Students dodged among vehicles inching past Jakarta's Welcome Monument, handing out leaflets filled with advice. Ironically, illicit drugs probably posed less danger to the students than the derelict buses that nearly ran them down.

In Indonesia, no one uses public transport by choice. But students and most other citizens cannot afford cars. Even the driver of a local angkot, or minibus, typically earns just $2 a day.

So when an automaker markets a cheap car, everyone takes notice - even if the automaker comes from China, seen in many quarters as a traditional cultural enemy. China's third largest carmaker, Chang'an Automotive, in Chongqing, has begun exporting its Chang'an range of Daihatsu-derived minicars.

The state-owned company's products are the cheapest new four-wheel vehicles available in Indonesia. They are likely to be popular among angkot owners who must replace their aging taxi fleets. To find anything cheaper, taxi owners would have to buy a motorcycle or a bajaj, a motorized tricycle that is prone to rollovers.

Chinese exports

But this is an experiment of sorts for China's auto industry, which is not noted for its exports. Chinese automakers export about 15,000 cars and trucks per year. Its products are regarded as hardly suitable for Asian markets, which already are well served by Japanese automakers. But the Chinese are good at making things cheaply. And with Indonesia's economy sliding below a per capita average of $1,000 per year, price matters.

Indonesia's currency has crashed; fuel prices have risen 30 percent; and there is talk of a 57 percent rise in bus fares. People desperately need cheap mobility. Chang'an appears to have the perfect solution: a 20-year-old Daihatsu design produced under license in southwest China's Sichuan province.

best known for alto

In July, the company's local importer, PT Asiamotor, showed a basic flatbed pickup version at the Jakarta Fair priced at $3,481. A box van, a double-cab pickup and, most importantly, an eight-seat angkot also are available.

Chang'an sold 197,300 vehicles in China last year, generating sales of $810 million. Since 1996, the company has more than doubled its output. It is best known for the tiny Suzuki-based Alto sedan, of which it made 50,000 units last year.

For China's 100-plus automakers, a sure sign of success is a joint venture with a foreign partner. Chang'an has a joint venture with Suzuki, and it launched a second joint venture in Chongqing with Ford Motor Co. It is unclear whether the venture will produce the Ford Ikon, the next Fiesta, or possibly some other product.

Chang'an, which means 'eternal peace' in Chinese, is owned by the Chinese military. The parent company is North Industries Corp., or NORINCO. During the tumultuous 1960s, China prepared for possible war by moving key factories inland to remote mountainous regions in the south and west.

In the 1980s, China encouraged these factories to shift production from military hardware to consumer products such as cars. Chang'an, in the southwest city of Chongqing, started producing minivehicles. In 1992, Chang'an formed a joint venture with Suzuki Motor Co. to make the Alto small car.

Chang'an's hometown, Chongqing, enjoys special status in China. It is one of a few cities that get investment support from Beijing. Chang'an has built a profitable business producing cheap, useful vehicles for farmers, small businesses and taxi fleets. Because it is owned by the military, Chang'an is not as well known as other Chinese automakers. Officials in Beijing almost never openly state their support for the company. But Chang'an is one of the Chinese auto industry's strongest companies. And with its proposed joint venture with Ford, it seems likely to grow stronger still.

Shaky quality

Chang'an exports its lowest priced models to the Middle East and southern Africa. But it took a certain amount of daring for PT Asiamotor to import Chinese-made vehicles. Thirty-five years ago, hundreds of thousands of ethnic Chinese were slaughtered in the riots that accompanied the rise of the dictator Suharto.

In 1998, thousands more were killed and tens of thousands fled in the chaos before Suharto's removal. In times of economic turmoil, the ethnic Chinese - many of whom are wealthy merchants - still endure accusations of profiteering. But the reform that came after the forced resignation of Suharto has eased local attitudes toward Chinese products.

'This was a problem before, but now look at how Chinatown is accepted,' says Kris Sarumaha, regional manager for PT Asiamotor, Chang'an's Indonesian importer. He gestures toward the Jakarta Fair display, near which a Chinese troupe of acrobats is preparing for its twice-daily performance.

Indeed, Indonesia appears to be ready for Chinese auto imports. A second importer, Dharma Nugraha Paramitra, plans to market vehicles built by Chang'an. And a third importer is selling minibuses built by Liuzhou Wuling Motors Co. Ltd.

While ethnic tensions are unlikely to hobble PT Asiamotor, quality might be a bigger problem. These are not vehicles you would want to swap your Jaguar to drive, or even your Toyota Kijang, Indonesia's favorite multipurpose vehicle.

For $4,600, you get a car with ill-fitting body panels, and no extras such as air conditioning. Motorists can forget about performance. The one-liter motor is equipped with a carburetor, and it produces just 55 horsepower. Yet, the vehicle is supposed to carry as many as seven passengers or a maximum payload of five tons - just as it does at home in China.

It is not exciting, unless your only alternative is that bajaj. That is why a Jakarta public minibus company is completing a deal to buy 1,000 bargain-priced Chang'ans. And there are plenty more potential customers. PT Asiamotor is using its Dast brand to market the Chang'ans. The company already imports motorcycles from China and has a 50-dealer network in West Java, Indonesia's most populous province.

PT Asiamotor has stocked 2,000 units of the basic flatbed pickup and expects to sell all of them this year. To make the minibus version, PT Asiamotor adds its own bodywork and seats at its factory in Tengerang, 40 kilometers west of Jakarta. To adapt the vehicle to Indonesia's steamy climate, the company adds a larger radiator. The vehicles emerge from the factory with a rather crude Dast badge placed over the Chang'an original. Within five years, says Kris, the company is aiming for full production - that is, assembly of complete knockdown kits.

But some industry leaders do not share PT Asiamotor's optimism. Chinese-made motorcycles have a reputation for poor quality, says Bambang Trisulo, chairman of GAIKINDO, Indonesia's automotive industry association.

'They are cheap but short-lived,' Bambang says. 'These new imports have received their permit from the Department of Industry, but what about maintenance? What about performance?'

To ease fears about poor quality, Asiamotor is offering a one-year, 50,000-kilometer warranty on the Chang'an range. 'All our dealers must have full parts and service facilities,' Kris says. Anyway, he adds, would a public minibus operator buy Chang'ans if there were serious doubts about reliability?

The Chang'an's biggest Indonesian rival is the Suzuki Carry, formerly the cheapest thing on the market at $5,090. The minibus and minivan sector accounted for sales of 23,000 units in the first five months of the year. Kris says PT Asiamotor would like 10 percent of this market. It will face some competition; two rival importers also are importing Chinese-made vehicles.

bad remarks

Bambang hopes to avoid a repeat of the Chinese motorcycle fiasco. Chinese-made two-wheelers accounted for 30 percent of the Indonesian market, the world's third largest.

But Kris says 'a combination of rumors and bad remarks' sliced that share below 20 percent this year. Nobody is sure who started rumors about the unavailability of Chinese spare parts. But these reports are now plentiful. Led by Honda, the Japanese manufacturers have campaigned against the Chinese models, claiming intellectual property infringements. The Chinese responded by suggesting that Japanese manufacturers are upset because their once-safe market share is threatened by cheaper rivals.

Kris says PT Asiamotor will keep the Dast/Chang'an just below the Suzuki's price, enough for a small profit. If Indonesia's currency recovers even a little, it can drop prices and sell more vehicles. Time will tell if the Chang'ans will stand up to the rigors of Jakarta's taxi fleets, which operate 15 hours a day, seven days a week.

But the taxi fleet is falling apart. Fleet owners cannot afford to care if the Chinese are dumping exports at low prices, as many detractors allege. Even if the Dasts fall apart in five years, that is five years longer than the present fleets will last.

Writer Michael J. Dunne contributed to this report.

E-mail writer John Boley at Journo@Boley.com

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