MANILA, Philippines – The Philippine govermment should pursue policies that would provide much-needed boost to the local automative industry, regarded as the “laggard” in the region.
The country is also in an advantageous position to grab Japan’s declining automotive investments in Thailand and China, said Toru Asai, Automative International Trade Policy Director of Japan’s Ministry of Economy, Trade and Industry on Monday, June 16.
Asai is in the country for the Industrial Cooperation Dialogue between the Philippines and Japan.
“It is necessary to take strong policies to prevent domestic vehicles from falling behind imported cars as quickly as possible,” Asai said in his presentation.
Asai said without policies that would offset price differentials between imported cars and domestic cars, vehicle production in the Philippines will remain stagnant or even decrease.
Local production must hit 200,000 units by 2020 – a critical tipping point for local production to invite suppliers in time with the model change and the motorization of the Philippines.
Based on data from the Association of Southeast Asian Nations (ASEAN) Automotive Federation, the Philippines is the laggard among 5 ASEAN vehicle manufacturers in 2013, outpaced by Vietnam.
Asai said that increasing the ratio of local content or increasing production scale will directly affect the cost-competitiveness of the Philippines and market growth can be expected.
A model life cycle is anywhere from 5 to 10 years. Asai said vehicle production in the Philippines does not increase inspite of market growth partly due to the tariff elimination since 2010.
The Philippines relies on imports to procure many parts, unlike Indonesia (which produced 1.2 million units in 2013) and Thailand (which produced 2.45 million units) where automobile manufacturers produce most of the parts domestically.
“The large number of imported items and little volume of auto production has led to high production costs,” Asai said.
Transportation cost for completely built-up units is lower than for knocked down parts, which partly explains why production decreases in spite of market growth, Asai pointed out. He said the cost, insurance and freight (CIF) price of vehicles produced in Thailand is 15% lower than those produced in the Philippines.
PH as a regional manufacturing hub
The June 16 dialogue was the first in a series of discussions with Japan on industrial policies, particularly on automotive, services, and small and medium enterprises (SMEs), Department of Trade and Industry Undersecretary Adrian Cristobal Jr said.
Similar consultations with the Japan International Cooperation Agency (Jica) on shipbuilding was also conducted, Cristobal added.
DTI Assistant Secretary Ceferino Rodolfo said the Philippines is trying to lure 10,000 first and second tier suppliers, mostly SMEs in the automotive industry or those in the assembly and in modules supply for functional parts, interior/exterior parts, machining and pressing, and tier 2 suppliers or those engaged in parts processing (pressing, plating, cutting, screws, cast/forged special parts).
Japan sees the wide linkages of the automotive industry even in textile, iron and steel, plastics, electrical wiring, petrochemicals, aluminum, etc, Rodolfo noted.
Japan’s investment in the automotive industry fell by 50% in Thailand and has been reduced in China due to political and wage issues in those countries. Even Indonesia is becoming expensive for the Japanese, Rodolfo said.
“The Philippines is stable politically and also in terms of wages. These along with the fact that we are in the verge of motorization, Japan sees the country as a possible regional hub for manufacturing,” he said.
According to the Japanese External Trade Organization (JETRO), Japanese companies invested ¥2.33 trillion ($22.8 billion) in Singapore, Thailand, Indonesia, the Philippines, and Vietnam in 2013, with $887 billion yet invested in China.
In 2012, Japanese investments in the automotive industry doubled in Southeast Asia and fell by 18% in China.
In 2013, Japanese capital flow to China dropped to $6.5 billion, less than half the $13.48 billion Japanese investment China attracted in 2012.
JETRO further reported that Japanese companies planning expansion in China fell to the lowest number ever at 55%. – Rappler.com