Car Hub Project to Spur Philippine Manufacturing

BY :KARL LESTER M. YAP & SIEGFRID ALEGADO

MARCH 11, 2015

Newly assembled Toyota Vios sedans are seen at a stockyard of the Toyota Philippines manufacturing plant in Sta Rosa, Laguna, south of Manila August 11, 2014. Top Japanese automakers in the Philippines are threatening to shift production to cheaper Southeast Asian countries as the government drags its feet on a plan to rebuild its shrinking car manufacturing industry. The potential pullout of production lines by Toyota Motor Corp and Mitsubishi Motors, which have a combined 50,000 vehicle annual capacity in the country, would mean the Philippines could lose more than 1,000 jobs and millions of dollars worth of planned and existing investments. Picture taken August 11. REUTERS/Erik De Castro   (PHILIPPINES - Tags: TRANSPORT BUSINESS)

The Philippines will offer tax breaks to as many as three automakers as one of Asia’s fastest growing economies aims to become a regional production hub.

President Benigno Aquino is set to issue an order implementing the Comprehensive Automotive Resurgence Strategy program, or CARS, “within this year,” Trade Secretary Gregory Domingo said in an interview in his office in Manila Tuesday. “The car industry’s supply chain feeds into other industries, and we think that becoming a regional hub will help fill our gaps in manufacturing.”

The Philippines is seeking to replicate Thailand’s success in building its auto industry, betting that a young workforce and its biggest economic boom since the 1950s will lure companies such as Volkswagen. Aquino, who steps down in June 2016, is raising spending on roads and airports to a record this year to lure more foreign direct investment and bolster growth to as much as 8 percent this year and next.

“Government support will be a factor in determining further investment and future plant expansion,” said Rommel Gutierrez, a spokesman for Toyota Motor Corp. in Manila. An incentive program will “benefit both the government and private sector, if it’s feasibly administered,” said Gutierrez, who is also president of the Chamber of Automotive Manufacturers of the Philippines, or CAMPI.

Car companies will need to meet minimum production levels to qualify for the incentives, Domingo said, declining to specify exact amounts as officials still are discussing details. The government has considered annual output of 40,000 vehicles fully built in the country to qualify for benefits, the Manila Bulletin reported in November.

Infrastructure improvements

Easing infrastructure logjams also will be essential to spurring more auto production. “If the intention is to start exporting, you need good quality ports and roads, and that needs to move in tandem with offering incentives,” said Rahul Bajoria, a Singapore-based regional economist at Barclays.

The auto industry accounted for about 3.6 percent of the Philippine economy in 2011, according to a study by Ramon Vicente Kabigting, executive director of the Philippine Automotive Competitiveness Council. The CARS program is intended to save as much as $17 billion in import costs by 2022, the Philippine Daily Inquirer reported in October.

The Philippines lost to Thailand in 1996 when General Motors chose its neighbor for a $750 million car factory even as the company was offered fewer incentives. Philippine officials had tried to woo GM by offering free land for the plant to boost the country’s auto industry.

Philippine manufacturing expanded an average 9.2 percent in 2013 and 2014, while net FDI rose 66 percent to $6.2 billion last year, the central bank reported Tuesday. In 2013, Thailand had $12.6 billion of FDI while Vietnam attracted $8.9 billion.

Finding a niche

“We can’t compete head on with the likes of Thailand, which is so far ahead of the curve in terms of car production,” Domingo said. “The vision is to find a niche for the region, a mass producer of a model that is not produced in Thailand.”

While Philippine manufacturing has diversified into medical devices, parts for aircrafts and motorbikes, and oil and gas platforms, the nation lacks the medium-sized “in-between” products such as cars and refrigerators, Domingo said.

The Philippines probably is “no longer a competitive place for automakers,” said Jessada Thongpak, an analyst with IHS Automotive in Bangkok. The nation will produce 90,000 light vehicles this year, compared with 2.14 million in Thailand and 1.3 million in Indonesia, IHS projects.

Japanese companies are very interested in the Philippine auto road map, Japan Chamber of Commerce and Industry Chairman Akio Mimura said in February. Aquino met with officials from Volkswagen in September during a trip to Europe, offering the Philippines as an Asian production base.

“We want serious players who really have an intent to make us a regional manufacturing base,” Domingo said. “We want a bigger commitment because they’ll be forced to bring their supply chain, and that will really boost our manufacturing.”

Bloomberg

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