Desperately waiting for the roadmap

By Aida Sevilla-Mendoza October 29,2013

First, it was Ford Motor Co. that shut down its assembly plant in Sta. Rosa, Laguna, at year’s end, 2012.  Now, rumors are rife that Nissan Motor Philippines, which is merging with Nissan light commercial vehicles assembler/distributor Universal Motors Corp. under the auspices of Nissan Japan, will cease local manufacturing in Sta. Rosa, too, perhaps when the production cycle of the recently launched Nissan Almera ends. Though the latter will take about five years to play out, the possibility of another car manufacturer leaving was enough to prompt Sta. Rosa City Mayor Arlene B. Arcillas to organize a half-day public conference on automotive manufacturing last Friday at the TASC Building of the Toyota Special Economic Zone in her own city. The hopeful theme: “Manufacturing for Regional Development: Automotive Industry in Focus.”

 

Auto and auto parts manufacturing, after all, has established Sta. Rosa as the “Automotive Capital of the Philippines” and Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon) as an important regional manufacturing center. However, although vehicle sales are expected to hit an unprecedented 210,000 units this year, the Philippines continues to lag behind its Asean neighbors in auto production and sales. From January to July 2013, we produced only 43,233 units while Thailand rolled out 1.5 million vehicles and Indonesia 692,666 units. At present, 62 percent of vehicles sold in the Philippines are CBU (completely built unit) imports while only 38 percent are locally assembled. To boost production and position the Philippines on the auto manufacturing map of the Asean region, the Department of Trade and Industry’s (DTI) Board of Investments (BOI) is finalizing the Philippine Automotive Manufacturing Industry Roadmap.

 

The problem is that for the last two years, the BOI has been finalizing the Roadmap, aka the Motor Vehicle Development Program and Executive Order No. 877-A, with no set date as to when it will come out.  Meanwhile, according to Rep. Rufus Rodriguez, author of House Bill No. 390: Philippine Automotive Manufacturing Industry Act, our Asean neighbors have already produced programs to attract more auto manufacturing investments. The next wave of auto investments is expected to come before 2015, when the integration of the Asean Economic Community takes place.

 

ASEAN PROGRAMS. As early as 2007, Thailand, the region’s pickup truck manufacturing hub, initiated an Eco-Car Program to diversify its industry with fuel-efficient, eco-friendly subcompact cars; Indonesia signed in May 2013 a Low-Cost Green Car Program in its bid to become the Asean’s leading auto producer;  Malaysia revised its 2012 National Automotive Policy this year with the aim to become the “Energy Efficient Vehicle” production center of the region; Vietnam will come out this year, if it hasn’t already, with its revised Automobile Development Plan to increase domestic capacity towards 2020 with a vision to 2030.

 

With Asean total vehicle production projected to grow by 8 percent compound annual growth rate to reach 7.05 million units in 2019, the Philippines must scramble to ensure the sustainability and improve the competitiveness of its auto manufacturing industry. In November 2012, the  Philippine Automotive Competitiveness Council Inc. (Pacci) submitted a roadmap to the BOI with a projected timetable whereby current 36-percent production output will be increased to 100 percent by 2016 following local market buildup in 2013-15 and onward to 150-percent increase in output to 500,000 units by 2022 to achieve Asean market integration following export program preparation in 2017-21.

 

Explaining the urgency of HB 390 at the Oct. 22, 2013, organizational meeting of the House committee on trade and industry, Rodriguez warned that if we allow our vehicle manufacturing industry to fail, 2010 national statistics indicate we shall lose around P250 billion in combined output of the auto and auto parts manufacturing sectors, about P60 billion in combined value-added of these two sectors and 85,524 direct employment with P17.7-billion compensation income. Asserting that the country is starting to enter a stage of rapid motorization, Rodriguez said: “The industry projects a market of 300,000 units by 2015 and 500,000 units by 2022. The question is: How do we want to serve this demand? Should we just import CBUs which may affect our foreign exchange reserves? Or do we want our local industry to serve this demand and generate more jobs in the process?”

 

EXPORT BASE. Rodriguez emphasized that his bill supports and is consistent with the upcoming Roadmap of the DTI which aims to make the Philippines not just a domestic auto production base but an export base as well, with the end in view of integrating our industry into the Asean Regional Production Network by 2022. As a presidential executive order, the DTI’s Roadmap will serve as a temporary measure to bridge the competitiveness issues the industry is facing. The enactment of his bill, he said, would ensure that the industry can continue to grow regardless of a change in government.

 

Nonetheless, rebuilding our auto industry faces big obstacles. Speaking at the Sta. Rosa conference last Friday, DTI Manufacturing Industries Department director Rudy B. Cana said production has declined because of—among other factors—the erosion of the domestic market base due to the entry of cheaper CBUs via free-trade agreements like zero tariffs for vehicles imported from Thailand and Indonesia, the higher (by 15 percent) production cost here, the smuggling of used vehicles and our underdeveloped parts manufacturing base (currently one-tenth that of Thailand).

 

But it’s not too late for the Philippines to catch up, Cana said.  With the country having attained a steady 7-percent economic growth rate, a $2,500 per capita level and a population of 100 million making us the second most populous country in the region next to Indonesia, the timing is right to spur domestic market demand via fiscal and nonfiscal incentives, attract foreign and local investments, scale up the parts supply base and move away from tradition-based to performance-based policies. Cana pointed out that all the developed nations of the world built their auto manufacturing industry as the base of their industrialization. He agreed with Philippine Institute of Development Studies vice president Rafaelita M. Aldaba that the assembly of CKD (completely knocked down) packs is not competitive, so we should move from CKD operations to full automotive manufacturing like Thailand and Indonesia.

 

WAITING. But all that is easier said than done, what with the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi), the Motor Vehicle Parts Manufacturers Association of the Philippines Inc., the Philippine Automotive Federation Inc. and Pacci—all of whom were represented at the Santa Rosa conference—waiting for the Roadmap to specify the government’s new fiscal incentives, measures and policies before they can make a move. Campi sales leaders Toyota and Mitsubishi have said time and again that they cannot sit down with their counterparts in Japan to talk about new strategies and additional investments for this country until the Philippine Automotive Manufacturing Industry Roadmap is finalized and implemented.

 

The Sta. Rosa auto industry conference concluded with the city adopting a resolution expressing its support to the development of a national automotive policy to ensure the continued viability of the sector. As Aldaba said, “A lot of hard work would be necessary, (and a) strong political commitment to implement the Roadmap for structural transformation of the economy from agriculture to manufacturing would be needed.” She quoted hopefully from the book of Arthur Lewis, “The Theory of Economic Growth” (1955): “It is possible for a nation to take a new turn if it is fortunate to have the right leadership at the right time.”

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