Two of the country's leading auto manufacturers may be facing a challenging situation with the Philippine government according to reports.

Toyota Motor Philippines (TMP) and Mitsubishi Motors Philippines Corporation (MMPC) are currently enrolled in the country's Comprehensive Automotive Resurgence Strategy (CARS) program. Signed in 2015, the CARS program was made to entice automakers to assemble vehicles in the country by offering tax incentives for manufacturers, under the condition that they have to locally produce 200,000 vehicles within six years.

Toyota wants to build all-new Vios in PH image

In addition, they are required to localize the production of the body shells and large plastic parts and components. Mitsubishi's deadline to comply would end in 2023, and Toyota has until 2024. But with the pandemic disrupting their operations and causing delays in their production schedule, both manufacturers are asking for a three-year extension to satisfy the requirements and keep their incentives.

However, the Board of Investments (BOI) wants to have something in return to grant the requests of both manufacturers. According to reports, BOI wants the two brands to assemble another local model or offer a value addition without getting other additional incentives or additional government budget for the extension.

Toyota wants to build all-new Vios in PH image

From the BOI's standpoint, it's a win for local suppliers as parts makers working with both Toyota and Mitsubishi could generate more revenue for the country. However, for the two OEMs involved, this could mean another hefty investment especially with both manufacturers having their existing models enrolled in the CARS program (Mirage and Vios) at the end of their model life.

If we understand it correctly, that means Mitsubishi will have to produce the Mirage up until 2023, while Toyota will have to produce the current generation (not the new one in other markets) until 2024. Both Mitsubishi and Toyota also make other models such as the L300 and the Innova, respectively; by our understanding, both these vehicles are not enrolled in the CARS program given the sizeable volume required.

BOI wants Toyota, Mitsubishi to add more local-made models image

Retooling a factory will require a substantial amount of investment for the manufacturers involved, and doing it without getting additional benefits could turn out to be a lose-lose situation. As we all know, the Philippines is not exactly giving attractive opportunities for manufacturers to put up local production facilities compared to the likes of Indonesia and Thailand. We've seen that in the past with the likes of Honda and Ford opting to shut down local assembly lines and take their manufacturing operations elsewhere.

The government may need more than just twisting the arm of manufacturers for them to make more vehicles in the country.