AUTO INDUSTRY NEWS

Local parts makers' dream: A Car for Every Filipino Family

Local parts makers' dream: A Car for Every Filipino Family image

Text: / Photos: | posted August 31, 2006 00:00

A tripartite working group, the Philippine Auto Industry Development Working Group (PAID WG), was recently organized by the Board of Investments, the car and truck assemblers and the auto parts makers. This is in an effort to review the past government auto development programs and analyze how a new one can be developed to spur the sales volume of the local auto industry, specially those of vehicles manufactured from CKD kits. Local parts makers are still looking forward to the day when their dream would come true: A car for every Filipino family.

BOI assesses previous programs

In an assessment paper presented to the PAID WG, BOI's own review of the various Motor Vehicle Development Programs from 1972 up to the present indicates that it has generated investments of close to PhP50 Billion from the vehicle assemblers and PhP30 Billion from the parts manufacturers. The vehicle manufacturers employed over 9,000 workers while the parts manufacturers over 28,000 workers. All of these employees are depending on a viable auto industry for their livelihood.

In its Local Content (LC) Program, BOI reports that in 2004 alone, over PhP6.7 Billion local parts were purchased, export performance was $1.75 Billion and local parts manufacturers were already capable of supplying both the assemblers' OEM and replacement parts requirements.

BOI's briefing paper further assessed that "while the performance of the parts manufacturing sub-sector has relatively improved from its 1990 level, the LC Programs of the government has attained only moderate if not limited success. The most significant factors that affected the performance of the LC Programs are the weak regulatory framework, external shocks and the undeveloped support industries".

Auto parts localization still attainable

Given the previous performance of the various LC Programs, the BOI has reported that the government has drafted a roadmap identifying key initiatives to address the policy failures of the localization objectives. This would include the strengthening of the auto policy environment and the rationalization of government policies and programs. This is expected to increase the localization ratio with the full implementation of EO 262 and the recovery of the vehicle assembly sub-sector.

BOI's assessment of the current local auto industry is that auto parts localization is still attainable, but the levels of localization will largely depend on the viability of vehicle production. This means that the parts manufacturers must be given bigger production volumes to take advantage of the economies of scale. Local parts makers say this could be by increasing the volume of locally- assembled vehicles from CKD kits, something that a Philippine Utility Vehicle (PhUV) Program will achieve.

For the local auto parts manufacturers to better survive a borderless trade environment, the BOI recommends the mega mergers of small suppliers to maximize their design and product development potentials and for them to focus on their core competency: assembly. It also advocates for the convergence of the electronics, IT and transport sectors into a powerful, potent group that could drive the export market.

Local parts makers bat for PhUV

Local auto parts makers are advocating for a PhUV Program, one wherein locally-assembled brand-new utility vehicles will be produced at the price of an imported used vehicle but with a high level of local value added parts. They have been pushing for its inclusion in the government's Investment Priority Program (IPP) so that various forms of incentives can be granted to both assemblers and parts makers who will participate in the Program. Initial targets are a retail price of P350,000 and a local value added content of 60%.

Vehicle sales reports on the previous priced-based People's Car Program showed that only the Kia Pride survived until 2003, after hanging on as the only survivor since 2000 in the automobile market that was price sensitive. It sold only 180 units that year.

On the other hand, there were 256 car parts makers in the auto industry's peak in 1996. This is now down to only 173 parts makers, partly due to the demise of the People's Car Program. Furthermore, most of these parts makers are currently operating at only 40% plant utilization, with 28,000 workers dependent on it.

Records at the Land Transportation Office (LTO) show that in 2005, of the total new vehicle registrations of 173,671, only 97,067 came from the local auto industry. The huge balance of 76,604 came from the "gray" auto market, the backyard manufacturers, the diplomatic corps and the non-members of the Chamber of Auto Manufacturers of the Phils. (CAMPI) and the Truck Manufacturers Association (TMA).

A huge part of this 76,604-unit market is the target of the local parts manufacturers as they bat for the formulation of a Philippine UV (PhUV) Program that would make available affordable locally-assembled brand-new, re-engineered utility vehicles at the price of an imported used vehicle and with a high level of local value added parts.

The PhUV Program needs government support

This PhUV Program is in lieu of a People's Car Program as the car sector has been proven to be very sensitive to price, a factor that car assemblers find very hard to control. The AUV has proven to be the all-purpose vehicle for the working class and the enterpreneurs. It is a vehicle they could use for business, personal or family applications.

Local parts makers point out that Malaysia, with a population of 24.5 million, has been able to develop and produce its own people's car, the Proton, at about the equivalent of P300,000 and at a volume of about 500,000 per year. It enjoyed a wide range of incentives and support from the government.

Local parts makers thus believe that given the right volume, technical support from the car assemblers, enough government incentives and support and an improved credit facility, the PhUV just might succeed where previous programs have failed. Thailand, Malaysia and some of our A SEAN neighbors, even those with smaller population and less per capita income than the Philippines, have shown that this could be done if only properly supported and implemented.