German auto electronics firm weighs future in PH

By Bernie Cahiles-Magkilat

Continental Temic, world’s leading automotive electronics manufacturer based in Germany, will be weighing the future of its Philippine operation depending on the final outcome of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) bill, which seeks to overhaul the country’s incentive system to exporters.

In an interview at the SEIPI 4th Quarter General Membership Meeting and CEO Forum, Continental Temec Electronics Philippines General Manager Glenn Everett told reporters their two plants in Laguna produces cutting- edge products for automated driving and have the capability to produce new product innovations.

“Yes, we produce these products here to support automated driving and increase our capacity. So, I am hopeful we work positively and collaboratively to make CITIRA conducive to business. If it goes badly it will hurt our business, and if it goes well it will encourage our business,” said Everett.

Continental has already closed down 5 global plants as it restructured operations to support changes in the automotive industry where demand is moving towards solar and electric-powered vehicles and automated driving. Global demand for diesel vehicles has gone down as consumers also slowly shift to environment-friendly technologies. There have been no new investments also for diesel-powered vehicle engines.

Everett, however, said that this global restructuring did not affect the Philippine operations.

“No, not at all,” said Everett noting that the Philippines produces safety electronics such as auto braking, speed sensors and radar systems that they supply to every original equipment manufacturer in the world primarily to Korea, Japan and a bit to Europe and NAFTA (US-Canada-Mexico) countries.

The Philippines is home to Continental Temec’s R & D center. They also have two industrial engineering centers that design new machines to make auto products. The local unit of Continental AG of Germany employs 2,500 people in the country.
“There are many modules of radar and cameras and there are different variants for every car so we made innovations,” said Everett adding automated driving technologies are growing 25 times more.

“We build cutting-edge products right now in the Philippines it is great it is working,” said Everett, who is also SEIPI chairman. Thus, they need the CITIRA to be kind to their industry.

CITIRA seeks to remove the generous 5 percent tax on gross income earned which export firms registered with the Philippine Economic Zone Authority (PEZA) enjoy on a perpetual basis. This will be replaced by a reduced corporate income tax from the current 30 percent to 20 percent overtime.

“I want CITIRA resolved in a positive way for exporters because CITIRA is very good for domestic industries but exporters have significant tax increases,” he added.

As such, Continental’s future investments would depend a lot on how the tax rules under CITIRA develop.

“If the environment is positive, definitely we will add new capacities but if becomes uncompetitive we will not. We compete everyday and if cost increases then we will not be competitive,” said Everett, who has been working on and off in the Philippines for 15 long years.

In the Continental global sourcing, companies have to compete against each other in terms of cost.

“For instance, if Toyota needs a product, the company puts quotes and the best cost that’s where it’s located so if we become uncompetitive, we cannot win. So, we are always struggling to become competitive,” said Everett.

Continental Temec has also production operations in more than 100 locations globally, making it easier to shift production in other hubs in the region.

Meantime, Norberto Viera, senior vice president of Amkor Technology Philippines, said the industry is expected to post a flat growth this year on several factors causing uncertainty in the local market.

Viera said these factors include the trade war, no new killer products, and the taxation and incentives issue, among others.

He, however, expects the industry to perform better next yea when all of these factors have been resolved already.

SEIPI President Dan Lachica also reiterated at the forum that $1.2 billion worth of investments in the electronics industry went to Thailand, Vietnam and China at the onset of the proposed massive overhaul of the exporter’s incentives.