After Ford, other plants to close, if …

AN aerial view of the Ford Plant at Sta. Rosa

The news of the closure of the Ford assembly plant in the Philippines hit the motoring public and the local business community like an earthquake—sudden and seemingly without warning—a calamity amidst a surge in investor optimism. However, the signs were there months before: The American auto giant held the grand opening of its $450-million Thailand manufacturing plant in Rayong, Thailand, in May; Ford ended its local assembly of Mazda3 in January, while that of the Focus ended in June, leaving the Escape as the only vehicle being assembled at the Santa Rosa plant (But that, too, will end, as the last Escape to be assembled here rolls out in December 2012). The economies of scale, as well as supplier base, weren’t there for Ford.

Like a temblor, there may already be aftershocks on the way. Rumors have been rife that another manufacturing plant may be on the chopping block, as veteran motoring analysts do not rule out the possibility of more casualties borne by a “friendlier” import environment.

They point out that the tariff rates for fully assembled cars, which virtually became zero in 2010 (from 5 percent from 2003 to 2009 for Asean Completely Built Up units) made importing CBU vehicles into the country more practical than assembling them here. Furthermore, the observers note, local assemblers wait a longer time before gaining the profits from the local sales of their cars.

An industry source who refused to be named said: “Given now the equation of CKD [completely knocked down] and CBU tariffs at 0 percent for CEPT [Common Effective Preferential Tariff] and Japan, I would say there is no advantage for assemblers. Which is the reason why the Chamber of Automotive Manufacturers of the Philippines Inc, the Truck Manufacturers Association, and the Philippine Automotive Competitiveness Council Inc. are working with the government to re-craft a new Motor Vehicle Development Program to develop the local market and to have incentives for assemblers.”

The source warned that if the government does not intervene, it would be most likely that another auto plant would shut down. “We can’t continue producing the same CKD models for a long time. The principal company will naturally determine where the successor model will be produced, which will be advantageous to the model in terms of costs and volume,” added the source.

The Ford plant shutdown has led some auto executives of Japanese brands to nervously utter, in jest, perhaps, during the official launch June 29 of the upcoming Philippine International Motor Show at the Makati Shangri-La, “So who is going to go next after Ford?”

Lawyer Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines Inc., reacted to the rumors: “I hope the news is not true. We’re working on the solution to avoid another thing to happen.” Gutierrez had earlier declared at the PIMS launch, “The timing of the 4th motor show could not have been better as the Philippines is back on the international radar screens. We hope this year, we will become an investment grade-rated country. There is no better time for the Philippines than now to seize the limelight.”

He told Inquirer Motoring that the industry will continue to assess the impact of Ford in the auto industry, acknowledging that Ford’s involvement in the Philippine Automotive Competitiveness Council Inc. (PACCI) had been “instrumental” to its establishment.

PACCI is composed of auto assemblers and auto parts makers who have recently proposed the transformation of the auto industry from being predominantly focused on the assembly of completely knocked down (CKD) units for the local market to outright vehicle manufacturing for the local and export markets.

“The issues (that the Ford plant closure has raised), which include lack of supplier base and no economies of scale, are common. The industry knows that. We are trying to address them. We are collaborating with the government to come up with the road map precisely to address those issues,” stressed Gutierrez, adding that the group will not let the shutdown affect the road map as far as the local auto industry is concerned.

On the impact of the plant’s shutdown on the Motor Vehicle Development Plan, Gutierrez said, “there may be some slight adjustments, but we will continue to assess.” He added that the group will not be “crippled” as Japanese assemblers and auto parts makers are still part of the group.

Philippine Automotive Federation Inc. secretary general Frank Nacua said that the development of the automotive road map, spearheaded by PACCI and PAFI (the umbrella organization of automotive organizations), hopes to “resuscitate the ailing auto assembly and manufacturing operations in the country.”

Ferdie Raquelsantos, Motor Vehicle Parts Manufacturers Association of the Philippines president, said the advantages of maintaining an assembly plant in the Philippines still remain, and these are low labor costs, abundant supply of skilled labor and professionals, adequate industrial sites and facilities, and improving infrastructure. Raquelsantos said the disadvantage of a limited supply base is solved by “Asean sources, and are duty free,” and the issue of the economies of scale is addressed if the local assembler exports.

The view from a dealer, owner

Willy Tee Ten, who runs Ford dealerships in Taguig, Manila, Davao and Cagayan de Oro cities, said that he understood why Ford Group Philippines (FGP) had to close its Philippine plant. He said he was “hoping that the reason would be properly explained to the media, because I received several messages and phone calls from my friends regarding the plant shutting down, and I had to explain it to them one by one, especially to my client friends. I was surprised that it came out in the news that quick and it somehow gave a negative impression to FGP and to the brand.

“I hope that people would understand that the products and services of Ford here in the Philippines will never be affected with this circumstance, and that Ford Philippines will be launching more quality car models, and the expansion of the dealers will still continue.”

Tee Ten is scheduled to open Ford dealerships in Zamboanga, General Santos and Tagbilaran cities.

He also stressed that all prices will remain the same, for both cars and parts. “The increase of prices is normal to all companies, especially if the prices internationally will increase. Apart from that, everything else will remain as is.” He added that he is excited for the upcoming new versions of the Ford Ranger and Mustang.

Ravien Bracero, who owns several Ford vehicles and is an events committee member of the Ford Club (Philippines), said the club knew of the plant’s closure a year before, but had dismissed them as mere rumors.

“We felt bad that Ford employees would become unemployed. And we can’t help but think our government hasn’t made steps to help the foreign investors to stay in our country.”

The local auto industry, combined with the automobile manufacturers that maintain assembly plants in the country, generates $3.2 billion in export revenues, P100 billion in total investments, an estimated P2 billion in duties and business taxes, and over 75,000 highly skilled workers (direct and indirect), with their dependents numbering nearly half a million.

Though the buzz during the June 29 PIMS press conference was about the Ford plant shutdown, the show must go on for the 15 brands participating in the 4th PIMS, to be held August 16 to 19 at the World Trade Center in Pasay City. Brands on showcase would be BMW, Chrysler, Daewoo, Dodge, Honda, Isuzu, Jeep, JMC, Kia, Lexus, Mercedes-Benz, Nissan, Honda, Suzuki and Toyota.