Seven ways the CARS program will affect buyers

President Aquino tours the newly inaugurated factory of Mitsubishi Motors Philippines Corp.

For an automotive industry program that’s named after the very thing Pinoys are crazy about, it’s truly ironic that the average motorist doesn’t seem to “connect” with it. A big part of that disconnect may have stemmed from the program being explained from a pure business standpoint—the kind of explanations coming from men in fancy suits and ties lugging laptops and showing fancy PowerPoint presentations.

True, the movers and shakers in the local automotive industry already know every nook and cranny of the Comprehensive Automotive Resurgence Strategy (CARS) program—or Executive Order No. 182—which, in a nutshell, provides financial incentives of up to P27 billion for three participating carmakers to enroll three different car models for local assembly, or about P9 billion in incentives per model, on the condition that production outputs for each model must reach 200,000 units over a six-year period, for a grand total of 600,000 locally produced units over six years.

The CARS program aims to double the current production volume of locally assembled vehicles.

Vicente T. Mills Jr., Federation of Automotive Industries of the Philippines president, told Inquirer Motoring, “The main point of the CARS program is to elevate the country’s vehicle production capabilities from its CKD (completely knock down) production mode where many bulky/high-value parts are imported and added to locally produced parts to make a complete unit to full vehicle production where these high-value/high-cost items as well as other previously not locally made parts are now to be produced locally.”

He added: “The estimated 200,000 units [to be made over the six-year model life is the volume level envisioned to make full vehicle production economically viable.”

Lawyer Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi), described the CARS program as “government’s support to local assembly of vehicles and manufacture of parts and components,” and enumerated the CARS Program’s key points: a) the two major conditions to qualify for incentives are car assemblers should have  investments in the manufacture of body shell assembly and large plastic assembly; b) common parts and strategic parts (not currently produced in the Philippines); c) shared testing facility for vehicles and/or parts; and d) production of 200,000 units of one vehicle model over a period of six years.

Gutierrez added that the P9-billion incentive per model is the “maximum” amount, and can only be availed of “if all conditions are met.”

Ferdinand I. Raquelsantos, Philippine Parts Maker Association president, said: “For so long, the Philippine auto industry has lagged behind our Asean (Association of Southeast Asian Nations) neighbors due to inferior incentives. The CARS program bridges the gap and levels the playing field. But it’s not enough. We used to spend about $1,800 more per unit to produce the same car model. With about $1,000 in incentives from the CARS program, this is down to a manageable $800 per unit.”

Mills said that, in general, automotive manufacturing facilities can be grouped into a) vehicle assembly plants and b) parts and components manufacturing facilities that produce the parts that are used by the assembly plants.

Under the CARS program, numerous new parts and component factories will have to be established and/or existing ones expanded for functions and volumes to meet the levels required of the participants.

Similarly, current assembly plant processes and capacities will need to be upgraded to meet the production targets under the program. These investments for vehicle production will benefit other manufacturing firms that use similar processes and materials, which would, in turn, increase their own capabilities.

So, there you go, the boardroom explanations of the CARS program.

Seven effects of CARS for buyers

So, how do all of these translate to the street level? Here are seven effects that car buyers will definitely feel once the CARS program is up and running:

1. Locally made (assembled) cars will become more affordable.

Mills said “the local production of 200,000 units of particular models will bring about economies of scale that could impact product cost and prices for the benefit of consumers.”

Gutierrez said “the CARS program will revitalize local production of vehicles aimed at reducing cost of assembly/manufacture, which will certainly benefit car buyers. The incentive of $1,000 per vehicle is an indication.”

Raquelsantos agreed that “the models that will be applied [in the CARS program] will become relatively cheaper and affordable.”

More affordable, indeed. But by how much? The jury is still out on that. Gutierrez said, “Specific figures cannot be quantified yet at the moment.”

2. Component and other after-market parts will also be more affordable.

Mills said the availability and prices of the newly localized parts would also have a positive impact on consumers.

Raquelsantos predicted, “Component parts will be easily and locally available. Replacement parts will be cheaper since they are produced locally and with volume of scale. Now that big metal parts of body shells and plastic bumpers will be locally produced, these would be cheaper as opposed to when you import and pay extra for logistics.”

Still, the actual rate of price reduction cannot be ascertained. “Since government is giving fiscal incentives to the tune of $1000 per vehicle, this will be basically passed through to the selling price of the unit. However, this incentive is performance-bound. More or less, program participants need to meet around 65 percent of parts to be domestically produced, and the prescribed volume of 200,000 units,” noted Raquelsantos.

3. Access to replacement parts will become easier.

Raquelsantos foresees high-quantity parts to be mass-produced as a result of the CARS program. “This would be especially true for common parts like rubber parts, car speakers, latches and mechanisms. Production cost becomes cheaper. Should a car owner get into a traffic accident, it’s easy to replace, say, the whole fender since this will be domestically produced.”

4. Locally made vehicles will be priced more attractively vs CBU counterparts.

Raquelsantos said: “With the CARS program, consumers will have choices to acquire a locally assembled unit that would be priced relatively lower than a CBU of the same category. A same-size body engine of a CBU competitor would be more expensive, considering there would be added costs in the importation of the CBU.”

5. It will generate more jobs aside from improving the consumers’ buying power.

Mills stressed: “The impact on the country’s national income from the direct and indirect job creation of the program will increase buying power of the consuming public, thus generating economic activity increases in other economic sectors as well.”

6. Vehicle quality will improve.

Gutierrez stressed that “with the vibrant local manufacturing/assembly of vehicles under the CARS program, the quality of vehicles will certainly improve,” a forecast that Raquelsantos agreed with.

“The quality of products will be of a high, competitive level,” Raquelsantos said.

7. Pinoy car owners will be driven by a stronger sense of pride.

Far beyond the price and quality advantages is the sense of pride Filipinos will carry around with them whenever they drive around in a wholly Philippine-made car. Raquelsantos said: “Consumers will be proud to own a car manufactured and assembled by Filipinos.”

Mills explained: “By its nature, vehicle production requires the establishment of numerous first-, second- and third-tier manufacturing firms to support production. As most parts makers are MSMEs (micro, small and medium enterprises), the program dovetails with the inclusive development direction of our economy.

The program will not bar the nonparticipants from continuing their current sales and production operations under a CKD system or via imports of CBU units. The CARS program participants may, however, have a more price competitive model, i.e., the model which is produced under the CARS program. All producers alike will have access to products of the new parts makers, which in turn would increase their local value-added levels and lower their CKD import bills. The economy at large will benefit from the direct and indirect jobs created by CARS as well as the technical and process knowledge that will come with the production of these newly localized high tech parts.”

Gutierrez said: “The CARS program will make the Philippines competitive especially among regional rivals. It will help maintain manufacturing plants in the country, and car manufacturers will have stronger ties with parts suppliers.”