Honda Motor closed its Philippine assembly plant because it was no longer strategic to keep a factory that makes too few cars as other car manufacturers warned the government against any future policy that could be seen as a punishment for auto companies that decided to stay.
Honda wants to focus its resources on future trends, such as producing electric vehicles, which, along with a slowdown in the global automotive market, prompted Honda headquarters to shutter some factories to make better use of its resources, the spokesperson of Honda’s local unit said.
And so, its plant in Sta. Rosa Laguna — along with over 380 factory workers — had become casualties of a global corporate strategy that essentially involved cutting dead weight to focus on where to go next.
Other factories would close down, too, although at least they would have more time to adjust to the news. For example, Honda is also ending its manufacturing operations in Turkey and the United Kingdom, but will do so in 2021 yet.
Here in the Philippines, factory workers will officially have only until March 25, or about a month after the closure announcement was made last Saturday (Feb. 22). Louie Soriano, spokesperson of Honda Cars Philippines, Inc. (HCPI) admitted that the manufacturer’s announcement was “abrupt.”
“Honda needs to close down the Philippine factory because of its low production volume. It’s not because of an issue on politics, or an issue on government policy, or on labor union. It’s none of that,” he said in a phone interview on Monday (Feb. 24).
“That’s the direction of Honda Motor so it could have an efficient utilization of its resources,” he added.
If a low production volume is the main reason for the closure, company figures would suggest that the Philippine unit had no chance of surviving the cost cutting measure, especially when compared to Honda’s soon-to-be closed factory in the UK.
In the UK, Honda has a capacity to make 250,000 cars annually, although this only reached 160,000 vehicles in 2018, according to media reports. This is a far cry from what the Philippine plant could make in Laguna — 15,000 units per year — and the actual number of units it produced last year — 8,000 units.
While it’s clear that the production volume is low, it’s not clear at this point why it was low to begin with. Soriano deferred from commenting, saying it was all because of “market demand.”
Although he said that the closure had nothing to do with sales, it is difficult to ignore the fact that Honda has seen its volume sales in the Philippines drop for at least two years in a row now.
This could be traced to the Duterte administration’s move to slap higher excise on new vehicles in 2018 under the TRAIN law, or the Tax Reform for Acceleration and Inclusion Act. This, coupled with high inflation rates that kept people from buying new cars, pulled Honda and the rest of the industry back from selling as many cars as they should.
Honda’s sales dropped 26.7 percent in 2018 to 23,294 units, and then fell further by nearly 13 percent to 20,338 units in 2019, industry data showed.
The Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi), the country’s largest auto industry group, said the closure of a company that has for long been a strong advocate of local manufacturing was “unfortunate.”
“It highlights the importance of continued government support to local production of vehicles and parts and components,” said Campi, which counts among its members big players like Toyota and Mitsubishi. Honda is also a member of the group.
“At this critical stage, Philippine government must seriously study any initiatives that will disincentivize domestic auto assembly operation as this will further endanger employment and existing investments, among others,” the group said.
Trade Secretary Ramon Lopez met with HCPI President Noriyuki Takakura on Monday to look for “alternative options.” Lopez, however, told reporters after the meeting that the Honda head office had already made up its mind to close the Philippine assembly plant.
Honda’s exit in March caps nearly 30 years of production in the Philippines, which churned out some of Honda’s most famous units, BR-V and City. Soriano said he is still not sure what to do with the factory after, although Lopez said that there are auto companies that are interested in taking over.
Nevertheless, its departure will leave the industry in an even more uncomfortable situation, as the Department of Trade and Industry considers further taxing imported vehicles through a safeguard duty. Lopez sees the possible safeguard duty as a form of protection for local assemblers, although local assemblers might not share the same opinion since a duty would make their imports more expensive.
“Of course, they expressed apprehension [on the possibility] of having a safeguard duty. That’s really more of an advantage for the local assembler if you have a safeguard duty because imports would be [further taxed], Lopez said after the meeting.
“Maybe the [Honda] headquarters can consider that in the future,” he added.
However, when asked if it was still possible for the Honda plant to return, Soriano said this was out of the local unit’s hands.
“I don’t know because this is the decision of Honda Motor. We don’t know,” he said.