How to attract billion-dollar automotive investments

While we are all waiting for the long-delayed (two years and counting) Philippine Automotive Manufacturing Industry Roadmap of the Department of Trade and Industry (DTI), Indonesia has leaped ahead with $3.5 billion in investments from around 80 auto parts companies.  This amount, reported by Reuters last week, does not include the ongoing or new investments of global carmakers in Indonesia to expand or build new factories.

 

How does Indonesia attract so much foreign investment for its auto industry? Granted, our  population of 100 million cannot compare with Indonesia’s 240 million people, but the Philippines is still the second most populous country in the Southeast Asian region next to Indonesia. Nor has our $2,500 per capita level matched Indonesia’s $3,500 income threshold. Population times rising per capita income is the formula that attracts automotive investments. No wonder automakers including Toyota, Honda, Nissan and Daihatsu have spent at least $3 billion this year on a new line of low-cost, green car models targeting millions of Indonesians aspiring to scale up from two wheels to four.

 

40 PER 1,000. On the other hand, the penetration of four-wheel vehicles in the Philippines is most probably lower than Indonesia’s 40 vehicles per 1,000 people. And our economic growth rate of 7 percent surpasses other Asean countries.  The imminent motorization of the country should encourage automakers to invest more and expand their operations here, but—and this is a big but—they are stalled not only by the government’s continued failure to come up with a Roadmap approved by Congress, but also by the higher production cost here due mainly to our having Asia’s highest power rate, our inadequate auto parts supply base, inconsistent tax and trade policies, unstable investor protection laws, bureaucratic red tape making it difficult to start a business, get construction permits or even pay taxes plus the unimpeded entry of used vehicles.

 

Given these operating and regulatory burdens, the Philippines missed out in recent years when Thailand lured six of the world’s top automakers including Ford, Nissan, Honda and Mitsubishi to base their fuel-efficient, eco-friendly small car production there.  Now Indonesia is catching up with President Susilo Bambang Yudhoyono strongly supporting a low-cost, green car (LCGC) manufacturing program in which 80 percent of the vehicle must be locally made. Galkindo, Indonesia’s association of car manufacturers, expects sales to hit its 2013 target of 1.25 million vehicles, up from 1.11 million in 2012.  With LCGC vehicles selling for under $8,400 each, car sales are expected to double over the next three years in Indonesia. Meanwhile the Philippine auto industry expects this year’s new car sales to fall below the hoped-for 210,000 units total due to the impact of Supertyphoon “Yolanda” on the economy.

 

CORNERED. In Indonesia, Toyota and Daihatsu through their partnership with the conglomerate PT Astra International have cornered more than half of the market.  As of now, Toyota’s Etios Valco dominates the entry-level segment. Over here, Toyota Motor Philippines (TMP) president Michinobu Sugata will not confirm nor deny speculation that the country’s (and the world’s) biggest carmaker will infuse additional investment to produce a new fuel-frugal, eco-friendly mini subcompact  like an LCGC when the Roadmap is finally approved. At present, TMP assembles the Innova midsize multipurpose vehicle and the third generation Vios subcompact which is the country’s best-selling four-wheel motor vehicle. The other members of the Chamber of Automotive Manufacturers of the Philippines Inc.  also assemble the lower-end models of their respective brands and affordable utility vehicles.

 

At a public conference on auto manufacturing organized by the mayor of Sta. Rosa, Laguna, in October, the speaker from the DTI  said the assembly of CKD (completely knocked down) packs is not competitive and we should move up from CKD operations to full automotive manufacturing like Thailand and Indonesia.  These two neighbors have shown the way to attract billion-dollar direct foreign investments for their auto industry with a focused strategy and supportive government policy plus the political will to remove or at least minimize the obstacles to local market buildup and full automotive manufacturing. Only by adapting these methods can our auto manufacturing industry improve in competitiveness and eventually progress to export capability so as to successfully integrate into the Asean Regional Production Network by 2022.