National carmaker Proton has revived plans to acquire an auto assembly plant in Indonesia as part of its expansion into Southeast Asia and to battle increasing competition under a regional free trade agreement, a report said today.

The Financial Daily quoted a source as saying that a letter of intent has been signed by the carmaker's distribution arm, Proton Edar, to acquire the plant in Cikarang estimated to be valued at RM76 million.

Proton Edar's Indonesian unit is proposing to buy the plant on a 95:5 joint venture basis with Indonesian businessman Ahmad Safiun, the report said.

Proton first proposed in 2001 to buy the plant in Cikarang, which is an hour's drive southeast of the Indonesian capital of Jakarta, through a 70:30 joint venture with the original owner PT Ningz Multiusaha.

It did not materialise because its Indonesian partner backed out due to capital constraints, the newspaper said. The plant used to produce Chrysler cars for the Indonesian market but is now dormant after it was taken over by Indonesia's PT Bank Lippo.

Sources said the saturated Malaysian market and rising competition under the Association of Southeast Asian Nations (Asean) Free Trade Area (Afta) has prompted Proton to revive the acquisition plan.

Models for taxis

PT Proton Edar Indonesia is expected to complete in March the evaluation of the Cikarang plant. which will allow it to produce and distribute its cars in Indonesia and regionally to other Asean markets, sources said.

According to the report, Proton will initially produce the Waja sedan, followed by the Wira and Iswara models for taxis in Indonesia in August.

It aims to churn out 8,000 and 13,000 cars in the first and second years of operations respectively to capture 2.5 percent of Indonesia's passenger car market.

Proton already has plants in Iran and China, and has expressed the intent to expand to Indonesia, Thailand and Vietnam because the Malaysian car market, which is the largest in Southeast Asia, has a serious overcapacity problem.

Need to expand

Chief executive Mahaleel Ariff told reporters that the carmaker is expanding its operations in Asean, Middle East countries and in China but declined to confirm or deny the reported Indonesian venture.

"Proton needs to expand so we are looking at overseas plants, whether we are going to buy or lease. We are looking at all sorts of opportunities," he said.

Asked about Proton's request for another 20 years of tariff protection, Mahaleel said it was "in line with incentives for bringing your country forward in technology".

"That is the perspective but this is very official and this is not for public discussion. It is for them (the government) to consider," he added.

Mahaleel said Proton expects to launch its Wira replacement model "very soon".

Quality, new products, technology and affordability will be crucial factors for the company to remain competitive in the post-Afta period, he added.

Declining market share

Proton, set up nearly two decades ago, used to sell six out of 10 new cars in the country but for the first time in years, its market share has shrunk to less than 50 percent in 2003 under intense competition from Japanese and South Korean rivals.

Analysts say this is a crucial year for the carmaker, which faces more pressure because of higher duties and greater foreign competition under a new tariff structure imposed in January as part of Malaysia's plans to liberalise the auto sector ahead of Afta.

Proton has sought another 20 years of tariff protection but the government has remained silent so far on the carmaker's request.

Under Afta, import tariffs for most products in the region were cut to below five percent over the last year. Malaysia obtained a two-year reprieve for its auto industry until 2005 but it recently said it would further defer reducing duties to the required level until 2008. - AFP