Car firms asked to invest big in Philippine assembly

Too little, too late. While ASEAN-region automotive powerhouses Thailand and Indonesia are already implementing multi-year car assembly programs, the Philippines is struggling to merely come up with a plan for investment in the automotive sector. This is already four years into the current administration, and a mere two years before a new one will take its place. The new program begs disbelief as to how it can succeed, as it requires assemblers to first start producing vehicles in volume, something we know that the local market cannot even absorb.

Vehicle assemblers in the Philippines will receive incentives under the proposed Comprehensive Automotive Resurgence Strategy (CARS) program but only when they start producing the volumes required under the program.

This will give the government at least a year to prepare for the appropriation of some $600 million for the incentive scheme.

Trade Secretary Gregory L. Domingo said that even if the automotive manufacturing roadmap would be issued this year, it would take a while to implement it because the incentives were to be granted based on actual production and not while the companies were undertaking their respective construction and expansion programs.

The incentives under the CARS will likely take the form of tax credits.

“It will take a while for the automotive companies who may want to register under the program to implement their respective plans because they will have to put up the [facilities] and that will take a while,” Domingo said.

“The required production volumes under the automotive roadmap are significantly higher. If the companies register, they will have to have bigger plants, and they cannot just use their existing production facilities. It cannot be just minor expansions because their current volumes are small at around 15,000 units or so,” he said.

It was estimated that the shortest possible time new facilities or expansion programs could be completed was about 12 to 18 months. This means it can take a year or two before automotive companies will actually be availing themselves of incentives. Thus, there is no pressure for the government to come up with the budget for the CARS program immediately.

The CARS program, which covers the production of four-wheeled motor vehicles and parts like body shell assembly, is aimed at attracting investments into the industry, building domestic scale and enabling the Philippines to become a regional automotive manufacturing hub.

Fiscal and nonfiscal incentives under this program will be granted within a five- to six-year period. The granting of the incentives will be dependent on certain performance conditions.

Apart from the $600-million proposed support, other automotive policy measures meant to develop the automotive industry included the adoption of national standards for auto parts and certification of international quality systems; alignment of Philippine standards with other countries in terms of labor incentives, customs, as well as environment and safety standards, and linkage to the government’s refleeting program.

The CARS program is also expected to generate as much as $16.48 billion or about P757.8 billion in savings for the country in five years, as a result of the prospective significant drop in vehicle importation.

The CARS program is envisioned to significantly reduce the importation of completely built units (CBUs). At present, imported vehicles account for 70 percent of the total vehicles sold in the country, while only 30 percent represents locally produced cars.   The program hopes to reverse this ratio so that by 2022, the bulk of the targeted 500,000 vehicles sold would be locally produced. -With report by Amy R. Remo