Half a million—that’s the amount of people reliant on the Philippine automotive industry. This staggering figure alone should serve as a rallying call for P-Noy and his government to help protect and expand local car manufacturing and assembling. But the figures go on: it is the fourth largest output multiplier effect, where a one peso investment generates 3.67 pesos worth of additional output. It is extensively linked to significant industries such as electrical machinery, metal works, wholesale and retail, petroleum and even banking. The figures go on and on, but the Philippine Automotive Competitive Council, Inc. (PACCI) has made it clear: the local automotive industry is too important to fail. That’s more or less the message they’ve made clear at the Third Philippine Automotive Manufacturing Summit, which was appropriately titled, “Driving the Automotive Industry to Progress”.
Established in March 2009, PACCI advocates for the automotive manufacturing industry and seeks to enhance its overall competitiveness. The members of this organization are: the Motor Vehicle Parts Manufacturing Association of the Philippines, Ford Motor Company Philippines, Honda Cars Philippines, Inc., Isuzu Philippines Corporation, Mitsubishi Motors Philippines Corporation and Toyota Motor Philippines Corporation. Collectively, the PACCI members account for 90 percent of domestic vehicle production, 85 percent of all domestically supplied automotive parts and 90 percent of all automotive parts exports.
For the past two years, PACCI advocated for increased assembly of CKD or completely knocked down units for the Philippine market under the New Vehicle Development Program or NVDP. However, this year, they’ve proposed to widen the scope to include the outright manufacture of vehicles for both local and export markets. Thus, PACCI has unveiled a road map for the New Vehicle Development Program from 2012-2020.
According to Mr. Vicente Mills Jr., president of the Philippine Automotive Federation and the ASEAN Automotive Federation, it is imperative that this transformation take place to address the declining share of locally manufactured vehicles (LMV) in the domestic market and to allow the industry to access and meaningfully participate in the ever evolving ASEAN common market.
Over the period of 2000 to 2010, the sale of LMVs declined alarmingly from 96 percent to 44 percent of total vehicle sales. When compared to new vehicle registrations, the share of LMVs is even lower, at 34 percent or just 75,000 units—a third of the industry’s total production capacity which is pegged at 250,000 units.
Dr. Thomas Aquino from the Center of Research and Communication of the University of Asia and the Pacific (UA&P) has identified four key limiting factors to the growth of the local automotive industry as it is. First is the slower growth of the Philippines compared to its ASEAN neighbors. Second, is the weak supply chain specifically the small and medium enterprises (SMEs) which serve as the second and third tier sub-contractors. Third is the automotive industry’s uncompetitive pricing brought about by the lack of economies of scale, high assembly costs and higher percentage of imported rather than local raw material content. Lastly, is the complicated enforcement of the rules and regulations by the government, specifically in the smuggling of new and second-hand vehicles as well as the overlapping functions among government authorities granting fiscal incentives.
Given these problems, PACCI has proposed the NVDP 2012-2020 road map which aims for the Philippine automotive industry to become an alternative ASEAN production hub. It also aims to localize the production of critical major parts to support the competitiveness of the local/export markets, expand the unit production and export of parts and components and by 2020, the CBU vehicle export of 4 to 5 models to the ASEAN.
The road map consists of three principle stages, namely the local market buildup phase with the extension of incentives for complete vehicles, parts and components exports; the expansion of local vehicle sales and export of the selected models for local manufacture and lastly, by 2020, the integration of the local automotive manufacturing sector into the regional vehicle, parts and components sourcing network of the brand principals.
The road map identifies the establishment of production facilities of some critical parts currently not locally available as a core component of the future competitiveness of the industry. Mills stated, “to achieve regional competitiveness of our vehicles, we must build and/or expand capabilities in manufacturing critical parts such as vehicle body stampings, injection moldings or large parts, engines, suspension and steering systems and other parts that we don’t currently produce in the Philippines.”
Of course, PACCI says that critical for the NVMP 2012-2020 road map to work, there are five key assumptions that must be fulfilled. First is a continuous GDP growth of 7-8 percent from 2011 to 2020. Second is a stable political situation until the NVMP road map’s completion. Third is that the ASEAN will be a common market by 2015. Fourth is a supportive tariff environment including the delay of 2020 reductions for cars below 3.0-liter and light-commercial vehicles below three tons. Lastly is the thorough enforcement of laws, regulations on importation, valuation, registration and operation of vehicles.
Feliciano Torres, president of PACCI said that the industry must act now to build scale and attain regional competiveness to be able to take advantage of the ASEAN single market. “We can and should aim to become an alternative ASEAN production hub. We have the strengths—a total production capacity of 250,000 units annually and an abundant supply of skilled manpower in the field of auto and auto parts and components manufacturing,” said Torres.
Torres added that an important aspect of the industry road map development process is the renewal and strengthening of the strategic partnership between the government and the private sector. “This private-public partnership approach must be established as this will insure that sector development directions, reforms and policies are appropriate and consistent with the visions of all of the industry’s stakeholders.”
For the sake of the Philippine automotive industry, PACCI, its individual members and its half a million dependents, hope that the government is listening and will have the political will to instill change.