In Jakarta, nothing works and nobody cares.
It is strange, then, to see a major corporation from strict Singapore steaming in to rescue Indonesia's top carmaker. But that is what happened in March when Cycle & Carriage purchased a major share of PT Astra International for $506 million. To make the investment, said a top executive, 'There needed to be a very big leap of faith.' In Singapore, Cycle & Carriage is the sole distributor of Mercedes, Kia, Mitsubishi and Proton. It also maintains automotive ventures - including assembly, dealerships and distribution - in Malaysia, Australia and Thailand.
'We made a lot of money and then couldn't figure out what to do with it,' explained group finance director Neville Venter. Before buying Astra, the company considered alternative investments in health care and canning. Despite its automotive experience, it was a surprise bidder this past spring when Indonesia's Bank for Restructuring, known as IBRA, put Astra up for sale. Astra builds or retails vehicles for Toyota, Daihatsu, Isuzu, BMW, Peugeot and Nissan Diesel. The company also builds motorcycles for Honda. Astra accounts for 55 percent of total Indonesian vehicle sales.
'When Astra became available - when IBRA first approached us - we said `too big',' Venter said. 'As things developed, we became more and more excited and realized this was a unique opportunity. It was exactly what we were looking for.'
As the bidding continued, Cycle & Carriage raised extra funds and took a majority share of the consortium buying Astra. When it was over, Cycle & Carriage ended up with a 34 percent share of the Indonesian automaker.
A previous bid by a rival consortium of merchant bankers had collapsed after Astra's then president-director, Rini Soewandi, refused to let them see confidential financial documents. Soewandi was unceremoniously removed by IBRA. Replacing Soewandi was none other than T.P. 'Teddy' Rachmat, president of Astra for 14 years until 1998, when he was deposed by Soewandi.
William Soeryadjaya founded Astra in 1958. The company dabbled in such non-automotive ventures as palm oil, information technology and insurance. Soeryadjaya was forced to sell out when a bank owned by his son, Edward collapsed in 1992. To save the bank, the family sold a 74 percent share of Astra.
According to rumor, former president Suharto orchestrated the bank collapse. He did not forgive Soeryadjaya for pledging his allegiance to Abdurrahman 'Gus Dur' Wahid, an opposition leader who later succeeded Suharto. The government withdrew a huge sum from the bank in a single day without warning, which triggered the bank failure. It also is a fact that the Soeryadjayas' stake ended up with Nusamba, a company controlled by Mohamad 'Bob' Hasan, a close friend of Suharto. Moreover, Soewandi, the daughter of a former finance minister in Suharto's administration, now coordinates an anti-Gus Dur group of Moslem parties. Rachmat did not get along with Hasan. 'Bob Hasan asked me to resign,' Rachmat confirmed. So is Rachmat an ally of Indonesia's ailing president Gus Dur? 'I have never talked with him,' Rachmat said. 'I don't know him personally, and he doesn't know me personally.' Are such things still important for Astra? 'No. Not important. Only business. And I really don't care. I only really care that the country gets better again.'
A survivor of Indonesia's tangled business politics, Rachmat is an urbane man who expeaks excellent English. His office is large, but not ostentatious, which is unusual for this region. He seems to be a father figure to company employees. At the end of the interview, he was confident enough to laugh and ask, 'Well, what did you think of my answers?'
It seems likely that Rachmat's unflappable demeanor helped him to forge personal ties with C&C's Venter. Venter is a South African financial expert who has spent the last 10 years in Asia. A self-confident man in his early 50's, Venter did not exhibit the guarded caution of a typical Singaporean businessman. He acknowledges that Indonesia's careless business climate condones practices that would attract tough scrutiny in Singapore. But he gives IBRA credit for holding an honest auction of Astra. In fact, the bank has faced a difficult task selling off a batch of Indonesian companies that failed during the economic crisis of 1997.
'It became quite comical, the degree to which they wanted to be seen to be fair to the three (bidding) consortia,' Venter said. 'We were all doing the due diligence at the same site, and there were three rooms, and one of them was slightly smaller than the other two. They announced that, to be fair to all the bidders, every two days we would rotate rooms. We took turns in the room with a good view, the small room and the large room! That's the degree they went to say, `We are going to be totally fair to everyone'.'
One of the benefits of the tie-up with Cycle & Carriage is that Astra now is governed not just by the stock-exchange commission in Jakarta but also by the commission in Singapore. That gives Astra credibility that is rare for an Indonesian company. Venter also believes his company will improve Astra's customer service. But there never will be an Astra-brand model, as there nearly was in the heady days of 1975 when Astra built a prototype mini-MPV. Sources in the company allege that project was actually hijacked to become the base for the disastrous Maleo state-car project. The Maleo project was masterminded by 'Bob' Hasan.
'We canceled,' says Teddy Rachmat, 'and they won't start any such thing again.' Rachmat laughs and calls that project 'arrogant. And now we know better.'
Despite Indonesia's troubles, Astra's automotive business is profitable once again. Because autos account for 75 percent of Astra's business, the company is fundamentally sound. Most of Astra's problems are in its non-automotive businesses, but Cycle & Carriage has no plans to sell them. 'That would be the simple thing to do: Solve your debt problems, and tidy up the operation,' Venter said. But then, a cash-rich Cycle & Carriage would have to find other investments to put its money to work. 'So let's stick with the business we've got because ultimately we're going to end up diversifying anyway.' Indonesia's recovering auto industry is expected to grow to about 240,000 units this year after posting sales in the 90,000 range in 1998 and 1999. Before the nation's economic collapse in mid-1997, sales exceeded 300,000 annually. But near-term prospects for further expansion are limited. Growth in the auto sector could come from vehicle export. Toyota, which has a 7.7 percent stake in Astra, is considering a plan to expand production at two plants near Jakarta. The company wants to export the Kijang to Thailand and centralize Soluna production. Venter and Rachmat both expect Astra's retailing sales to grow but predict that they will have fewer franchises in the future.
Critics have accused Astra of controlling an automotive monopoly in Indonesia. Despite Astra's 55 percent share of sales, the company denies it. 'Definitely not,' said Bambang Trisulo, president-director of PT Astra Nissan Diesel and chairman of Indonesia's automotive industry federation GAIKINDO. Although Astra produces vehicles for most of the major foreign automakers, its various distributors compete against each other on price, he claimed. 'In terms of our capability in manufacturing or engineering, we try to be one. But in terms of the market, we fight each other.'
Perhaps so, but Rachmat acknowledges that competition is not his primary problem. 'The currency is the only thing I am worried about, and it's a big worry,' admits Rachmat with an expressive shrug. 'But there again, there are things we cannot affect. So leave the worrying aside. You can only do what you can do.'
You can e-mail free-lance writer John Boley at [email protected]