Philippine auto assembly industry lagging behind neighbors

Strict WTO compliance hindered automotive growth, says PPMA President


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The Philippines auto industry has much to celebrate, with 2024 serving as a banner year for vehicle sales, and yet another vehicle, the Toyota Tamaraw will begin local production. However, there’s also worrying development beneath these achievements. In spite of the growth, the Philippine auto industry, particularly its local manufacturing aspect, continues to lag behind its ASEAN neighbors.

The Philippines’ strict adherence to World Trade Organization (WTO) rules has left its automotive industry lagging behind regional neighbors like Thailand and Indonesia, according to Ferdi Raquelsantos, President of the Philippine Parts Makers Association (PPMA). While Thailand and Indonesia have strategically deviated from WTO guidelines to boost their automotive sectors, the Philippines’ compliance has resulted in missed opportunities and a declining domestic industry.

“Thailand and Indonesia have shown that strategic policies, even if they bend WTO rules, can drive significant growth in the automotive industry. Thailand now produces over two million vehicles annually, while Indonesia has become a hub for electric vehicle (EV) production. Meanwhile, the Philippines, which has followed WTO rules to the letter, has seen its automotive parts manufacturing industry shrink,” said Raquelsantos.

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Thailand has focused on manufacturing vehicles based on pickup-based platforms. These are vehicles like the Toyota Fortuner, Innova, and Hilux, Mitsubishi Triton and Montero Sport, Nissan Navara and Terra, as well as Ford Everest and Ranger. These models have proved popular in the region, with the Philippines sourcing many of these models as completely built-up units (CBU) — with the exception of the Innova which we manufacture locally — from Thailand. More recently, the country has expanded to produce hybrids like the Innova Zenix, Corolla Cross and Yaris Cross as well.

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Indonesia, by contrast, has focused on compact car-based MPVs, with models like the Mitsubishi Xpander and Xpander Cross, Toyota Avanza and Veloz, Hyundai Stargazer and Stargazer X, and Suzuki Ertiga and XL7 being sourced from the country.

Thailand, often called the “Detroit of Asia,” has implemented aggressive incentives such as tax holidays, import duty exemptions, and subsidies for local production. These measures, though sometimes seen as trade-distorting, have attracted global automakers like Toyota, Honda, and Ford, making Thailand the largest automotive producer in ASEAN. Similarly, Indonesia’s local content requirement (LCR) policy, which mandates that a significant percentage of vehicle components be sourced locally, has strengthened its domestic supply chain and drawn investments from major players like Hyundai and Mitsubishi.

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In contrast, the Philippines’ automotive industry has struggled. Local content in domestically assembled vehicles has dropped to just 20-30%, compared to Indonesia’s 40-80%. The number of local assemblers has also declined, with only a handful of major players remaining. Major players like Honda, Isuzu, Ford, and Nissan have long ceased local assembly operations, citing weak local demand and more competitive pricing from production in neighboring countries as some of the reasons.

Raquelsantos attributed this to the country’s strict compliance with WTO rules, which has limited its ability to implement protective measures or incentives for local manufacturers.

“While our neighbors were busy building their automotive industries, we were constrained by our commitment to WTO rules. As a result, our local manufacturers have found it difficult to compete with cheaper imports, and we’ve missed out on significant investments,” Raquelsantos explained.

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The numbers tell a stark story. Thailand’s automotive industry contributes over 12% to its GDP and employs more than 850,000 workers. Indonesia’s sector, driven by its LCR policy, has attracted over 10 billion in investments in the past decade. Meanwhile the Philippines' automotive exports amounted to just 4.3 billion in 2022, a fraction of Thailand's 30 billion and Indonesia's 15 Billion. 
Raquelsantos emphasized that the Philippines must adopt a more balanced approach to remain competitive. “We don’t need to abandon WTO rules entirely, but we should explore policies that support our domestic industries without violating international agreements. For example, we can focus on indirect support like infrastructure development, workforce training, and R&D grants,” he said.

The PPMA is also urging the government to consider a phased local content requirement and targeted incentives for automakers that invest in domestic production. “By learning from our neighbors and implementing strategic policies, we can revive our automotive industry, create jobs, and boost economic growth,” Raquelsantos concluded.

With the right policies, the Philippines can unlock the potential of its automotive sector and catch up with its ASEAN neighbors.