Here’s why PH auto industry has fallen behind

Published October 27, 2020, 8:03 PM

by Ellson Quismorio

Solons and stakeholders agree–the Philippine automotive industry has failed to prosper due to the country’s failure to expand the local sector for car parts.

They arrived at this conclusion Tuesday during a virtual hearing of the House Committee on Trade and Industry, wherein House Bill (HB) No.1833 or the proposed Act strengthening the competitiveness of the Philippine motor vehicle manufacturing industry was tackled.

Apparently, Thailand–which has a “strong supplier base” according to Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) President Rommel Gutierrez–can produce cars that are $1500 to $2,000 cheaper compared to the ones produced in the Philippines.

Valenzuela 2nd district Rep. Weslie Gatchalian, panel chairman, asked Gutierrez why this was the case. The latter, who joined the hearing as a resource person, said vehicles in Thailand are composed of 80 to 90 percent locally made parts.

On the other hand, the parts that comprise Philippine-made vehicles are only 40 percent locally made. Importing parts naturally adds to the cost of the final product.

“So talagang talo tayo (because of the) economies of scale (So we really get beat because of the economies of scale…the more you produce, the lesser cost you get. Those who stopped production in the Philippines, actually most of them went to Thailand. The cost is lower,” Gutierrez said, to which Gatchalian agreed.

Asked what the Thai government had been doing that the Philippines can emulate, the CAMPI head honcho said, “We think government incentives are very crucial in attracting foreign investors and Thailand is more active in that in terms of giving support to investors, to local manufacturers. We think it’s an advantage on (their) part.”

In his presentation to the House panel, Gutierrez noted that the local car market is estimated to decline by 43 percent in 2020. He said auto sales were badly hit by the COVID-19 pandemic, and that actual sales are way below the 2019 average monthly sale performance of 34,000 units.

The bill’s author, Cagayan de Oro 2nd district Rep. Rufus Rodriguez, said the pandemic’s effects make his measure more urgent. “We need to have more production and (generate) more employment…to be able to give stimulus to our car manufacturing program,” he said.

Rodriguez in his explanatory note said that the Philippines first implemented its motor vehicle development program in 1973. “Among others, the program was aimed at developing a local vehicle manufacturing industry that would effectively encourage the development of vehicle parts manufacturing and auto-supporting industries. The government envisioned the industry as a major source of manufacturing value-added, and therefore has potentially high economic contributions,” he said.

“However, the Philippines was not able to develop the competitive capacities of its motor vehicle manufacturing industry. The small domestic market base did not support economic scale in manufacturing operations. Moreover, policy inconsistencies and the weak regulatory framework have eroded the market base for new vehicles and consequently, the parts manufacturing industry,” the Mindanaoan said.

Article III of HB No.1833 provides for incentives for both manufacturers of motor vehicles and manufacturers of motor vehicle parts and accessories. These include a five-year income tax holiday, a net operating loss carry-over clause, option for accelerated depreciation of fixed assets, deduction on training expenses, double deduction on research and development, tax and duty-free importation of capital equipment; and tax and duty-free importation of training equipment.

Commenting on the measure, panel vice chairperson and Nueva Ecija 3rd district Rep. Ria Vergara said: “For this legislation to succeed we really need the cooperation of the major car manufacturers to buy into it. There should technology and skills transfer…if we have a law that forces them to development these local parts supplier with the help of government, we can reach economies of scale and become an exporter of parts and not an importer.”

In the end, a technical working group was formed on the motion of Vergara to further develop the bill. Rodriguez in particular sought more input from Gutierrez, who represented the manufacturers’ side.