Cars, parts makers want all-out local manufacturing

It’s not only behind the steering wheel that Pinoys have a hand in the cars you see on the road today. Do you know that the Philippines is one of the biggest producers of transmission and wire harnesses, among other car parts, in Southeast Asia? Do you know that this 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?

These numbers and figures were revealed during the third Philippine Automotive Manufacturing Summit last week at the Hotel Intercontinental in Makati led by the Philippine Automotive Competitiveness Council Inc. (Pacci). The council is composed of the Motor Vehicle Parts Manufacturing Association of the Philippines, Ford Motor Corp. Philippines, Honda Cars Philippines Inc, Isuzu Philippines Corp., Mitsubishi Motors Philippines Corp. and Toyota Motor Philippines Corp. In all, the council represents 90 percent of domestic vehicle production, 85 percent of all domestically supplied automotive parts, and 90 percent of all automotive parts exports.

At the summit, Pacci proposed the transformation of the 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.

Vicente Mills Jr., president of the Philippine Automotive Federation and the Asean Automotive Federation, stressed that the country should focus on being the next manufacturing hub in the region. He said that the two major production hubs in the Asean are now Thailand and Indonesia. The Philippines has been relegated to competing with Vietnam as the third hub.

Mills said that it is imperative that this transformation take place to address the declining share of locally manufactured vehicles in the domestic market, and allow the industry to access and meaningfully participate in the soon-to-evolve Asean common market.

From 2000 to 2010, local sales of LMVs (locally manufactured vehicles) in the Philippines declined from 96 percent to 44 percent of total vehicle sales. When compared to total new vehicle registrations, the share of LMVs in 2010 had even been lower, at 34 percent, or 75,000 units—a third of the industry’s total production capacity of 250,000.

Feliciano Torres, president of Pacci, said that the industry must act now to build scale and attain regional competitiveness to be able to take advantage of the Asean single market. “We can and should aim to become an alternative Asean production hub. We have the strengths—a total production capacity of 250,000 units annually and an abundant supply of skilled manpower in the field of auto and auto parts and components manufacturing,” Torres said.

He also said that the private-public partnership approach (industry roadmap development process renewal and strengthening of strategic partnerships between the government and private sector) must be established as this will ensure that sector development directions, reforms and policies are appropriate and consistent with visions of all the industry stakeholders.

Road map to 2020

The roadmap consists of three principal stages, namely the local market buildup phase with the extension of incentives for complete vehicle, parts and components exports; the expansion of local vehicle sales and of exports of the selected models for local manufacture; and lastly, by 2020, the integration of the local automotive manufacturing sector into the regional vehicle parts and components sourcing network of the brand principals.

The roadmap identifies the establishment of production facilities of some critical parts currently not locally available as a core component of the future competitiveness of the industry. Mills stated: “To achieve regional competitiveness of our vehicles, we must build and/or expand capabilities in manufacturing critical parts such as vehicle body stampings, injection molding of large parts, engines, suspension and steering systems and other parts that we don’t currently produce in the Philippines.”

Car plants

Pacci was established in March 2009 to advocate for the automotive and auto parts manufacturing industry in the Philippines and enhance its overall competitiveness.

Ford’s P4-billion plant in Laguna manufactures Focus and Escape.

Every 12.5 minutes, a Toyota Vios rolls out of the line, and every 16.7 minutes, a fresh-out-of-the-factory Innova is out the gates of Toyota Motor Philippines Sta. Rosa plant. The TMP plant uses not just local content but locally made parts from its Toyota Auto Parts plant.

Mitsubishi, meanwhile, has four models built here, two of which—the Adventure and the L300—have more than 70 percent of parts sourced in the country, while two other vehicles—Lancer EX and Fuso Canter—are CKD units with 10-percent local content.

The Isuzu plant locally assembles the D-Max, Crosswind, the F-Series and N-Series trucks and the local content is as much as 60 percent. The Honda plant, meanwhile, locally manufactures the City model.

Vehicle demand

The summit also revealed that by 2015, local vehicle demand is projected to reach 300,000 units. The current plant capacity is at 250,000 units.

The group said that as member of the Association of Southeast Asian Nations (Asean), the Philippines can take advantage of the open market once the Philippines reaches economies of scale and builds export capabilities.

By 2015, the Philippine population is also expected to hit 100 million. This number has been seen as a great potential for vehicle sales growth.

As of 2012, the country’s per capita income is $2,299.

To strengthen and sustain the growth of the automotive manufacturing industry would require supporting policies and programs, including the Motor Vehicle Development Program, according to Pacci.