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U.S. Automakers Rethink Asia Plans

January 16, 1998

DETROIT (AP) _ The Big Three automakers are rethinking their expansion plans for Asia, turning their efforts more toward buying into local factories that have suddenly become cheap since the region’s currencies plummeted.

Sales in Asia are falling, leaving less need to build new factories. At the same time, the dropping value of the baht, rupiah and won have made it cheaper for U.S. companies to invest in Asia.

General Motors is delaying plans to open a plant in Thailand, but on Friday said it was willing to invest more in Indonesia now that the country has halted tax breaks for a national car program run by President Suharto’s son. GM recently bought the remaining 40 percent stake of a company that assembles Blazer trucks in Indonesia.

Ford Motor Co. expects to produce fewer one-ton pickup trucks in Thailand starting next May because currency troubles have lessened demand. However, the low Thai baht could give Ford an edge when it exports the trucks to other countries, said Wayne Booker, Ford’s vice chairman.

``In some respects this situation is advantageous to us,″ he said.

Chrysler sales in Asia will be significantly lower than the 65,000 in 1997 because of the currency troubles. ``People are just not buying cars,″ spokeswoman Jodi Armstrong said.

In addition to delaying start of its Thailand project, GM spokesman Mike Meyerand said the company might build a smaller, cheaper model than previously planned because of the economic troubles.

GM has been talking with South Korea’s Daewoo and other South Korean companies about acquiring all or parts of their operations, Meyerand said. Ford Chairman Alex Trotman said the No. 2 automaker also is looking for such opportunities with currencies in the region weak.

In Indonesia, Suharto’s agreement to cut off sweet government deals for businesses run by his children and other families of Indonesia’s elite prompted GM to look more favorably on the country.

``We now stand ready to ... make further investments, including the introduction of new products, as market conditions become more favorable,″ said Donald T. Sullivan, president of GM’s Asian and Pacific operations.

GM said it purchased Garmak Motors’ 40 percent stake in General Motors Buana Indonesia Ltd. and that GM now owns 100 percent of the company. GM’s total investment in the country is now $110 million, Meyerand said.

Not only are the prospects of slower sales in Asia forcing automakers to scrutinize their spending plans, but stiff price competition in U.S. showrooms is expected to hurt revenue.

After a year of almost constant rebates and low-interest loan offers, the cheap Asian currencies have put U.S. automakers under increased pressure to hold down prices and keep offering incentives to car buyers.

Weak Asian currencies make Asian cars cheaper in this country.

To compete, the U.S. automakers plan to boost rebates and low-interest loans if necessary. That’s bad news for companies like General Motors Corp., which spent $1 billion more than it planned on incentives in 1997.

``Frankly it gets quite expensive,″ said G. Richard Wagoner Jr., head of GM’s North American operations. ``But I think the pricing flexibility is very limited.″

GM has extended to April an incentive program that was supposed to expire Jan. 5. Consumers can get $750 off or 4.9 percent financing on a Chevrolet Cavalier, and $1,000 off or 3.9 percent financing on a Chevy S-10 pickup.

Trotman said autos in the United States this year may have their lowest-ever price increase.

``The reality,″ he said, ``is that the weakened Asian currencies are going to change the competitive dynamic for all of us in 1998.″

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