Mixed sentiments on PH automotive industry plan

MANILA, Philippines – The freshly-minted Philippine automotive industry plan has received mixed signals from business groups and car makers – some say it’s not enough to compete with other Southeast Asian countries, while others fully support the program.

The Motor Vehicle Parts Manufacturers Association of the Philippines (MVMAP) hailed President Benigno Aquino III’s move to sign Executive Order No. 182  on June 1, which provides for the Comprehensive Automotive Resources Strategy (CARS) Program.

MVMAP president Ferdinand Raquelsantos said more government perks for auto makers with manufacturing plants in the Philippines would reduce production costs and help them compete with their counterparts in Association of Southeast Asian Nations (ASEAN) member-countries.

“The issuance of CARS solidifies the belief that manufacturing is the key to economic growth and sustainability. Parts makers can also expect new product parts developments for whatever new models that will be locally assembled by car manufacturers,” Raquelsantos said in a statement.

The Philippine government has earmarked P27 billion ($600 million) to finance the incentives package for automakers over 6 years. Aquino signed EO 182 in preparation for his state visit to Japan, home to major car manufacturers, from June 2 to 5.

The Department of Trade and Industry has pegged the estimated economic impact of the CARS program at P300 billion ($6.72 billion) over the medium term.  Its contribution to the  gross domestic product (GDP) is estimated at 1.7%.

Under EO 182, the govenment will provide an average of P4.5 billion ($101.01 million) in incentives over 6 years for 3 models. 

Big boost or not enough?

Raquelsantos said that the program will be a big boost to the industry as it is expected to generate 200,000 new direct jobs.

“Considering that at the moment, more than 60% of our country’s auto sales is from completely built up imported vehicles, it will mean an increase in local assembly from completely knocked down kits. This will mean local value added benefits in terms of labor, materials, and auto parts,” he said.

The Japanese Chamber of Commerce and Industry of the Philippines, Incorporated (JCCI), however, believes that the CARS program may not be enough to push the local car manufacturing industry ahead of manufacturers in ASEAN.

“Judging from [the] sales record here in the Philippines, no company can set up a new factory promptly,” JCCI vice-president Nobuo Fuji said in a text message to Rappler.

Fuji was asked what he thought about the recently-approved program, and whether it would entice more Japanese car makers to set up manufacturing plants in the country.

“There are already enough numbers in the Philippines. [Whether] they can expand or not, that is the question,” Fuji said.

He added: “Suppose there is a newcomer here and only targets 30% market share. That’s only 50,000 units of sales per year or 4,000 per month. It’s too small! Not enough to be ahead of ASEAN!”

Japanese car companies are the primary investors in the Philippine automotive industry. The members of the Philippine Automotive Competitiveness Council Incorporated (PACCI), which pushed for EO 182, are Toyota Motor Philippines, Mitsubishi Motors Philippines Corporation, Isuzu Philippines Corporation, and Honda Cars Philippines Incorporated.

Early this year, the Chamber of Automotive Manufacturers of the Philippines, Incorporated (CAMPI) had said that it expects 2015 vehicle sales in the Philippines to reach 310,000 units, including sales posted by the Association of Vehicle Importers and Distributors.

The subsidiaries of the Japanese automakers also belong to CAMPI.

Seen to be developed under CARS are  the manufacturing of auto parts not being built in the country such as large body panels, bumpers, instrument panels, head lamps, shock absorbers, plastic fuel tanks, and other components. 

Under the CARS Program, automakers can qualify for incentives for one model if it targets to produce at least 200,000 units over 6 years, and has a record of competitiveness.

Not threatened

Ford Philippines has no immediate plan to set up a manufacturing plant in the country, as it banks on more dealerships nationwide, but expressed openness to it.

“Right now, setting up a manufacturing plant is not in our immediate plans. But we’re open to it. Besides, Filipinos speak the best English,” said Ford Director of Marketing and Sales Minnie Valencia-Bustamante.

Ford Motor Company shut down its manufacturing facility in the Philippines in 2013.

Asked if her company is threatened as the government is enticing more Japanese automakers to set up plants in the country, Bustamante said: “The Philippines has always been dominated by Japanese automakers but there’s an American brand in the top 5. So, no. We don’t consider them as a threat.”

Berjaya Automotive Philippines president and CEO Steven Tan said that his company applauds the government for taking a firm step forward through the CARS Program.

“As the exclusive distributor for Mazda Motor Corporation, we are already sourcing 40% of our vehicles from ASEAN under the AFTA program last year. This year, we expect the ASEAN product mix to reach 50% of total arrival,” Tan said in an e-mai response to Rappler.

Tan said that Mazda is a niche brand catering to customers who go for global products with advanced technology and engineering content. “This translates to slightly premium pricing compared to facing Japanese automakers,” he added.

But Mazda, according to Tan, is challenged to meet the minimum volume requirement for the new automotive industry plan.

“Realistically, our market share penetration and volume, despite strong growth, projected into the medium horizon, will be severely challenged to meet the minimum volume requirement to take advantage of the CARS incentive program,” he said.

The Philippines is seeking to replicate Thailand’s success in developing its auto industry, betting that a young workforce will entice car makers like Volkswagen AG to set up manufacturing plants in the country. It has been lagging behind Thailand – projected to produce over two million vehicles in 2015 – in vehicle sales and production. – Rappler.com

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