Car firms warn of prod’n, supply disruption

Due to Euro 4 deadline

Motor vehicle firms in the country have warned of dire economic impact, production and supply disruption once the Euro 4 emission standards takes effect on January 1, 2016 stressing it is technically impossible for them to comply with the deadline set by the Department Environment and Natural Resources (DENR).

In a letter to Trade and Industry Secretary Gregory L. Domingo, the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) complained that Department Administrative Order (DAO) No. 2105-04 (Vehicle Emission Limits for Euro 4/IV and In-Use Vehicle Emission Standards) of the DENR was issued on March 24, 2015 without formal consultation on the final detailed provisions.

“Any disruption in operations will definitely have an adverse impact on the overall production and supply chain, affecting core automotive activities from parts manufacturing up to vehicle sales,” stated the CAMPI letter dated May 15, 2015. CAMPI is the country’s largest motor vehicle organization composed of 18 motor vehicle assemblers and traders.

CAMPI President Rommel Gutierrez said that DENR has been adamant in implementing the deadline of January 1, 2016 despite the industry's representation on the negative impact to the automotive production and supply chain.

Instead of giving the industry some consideration, CAMPI said that DENR denied CAMPI’s two requests. One is for the DENR to honor the existing Certificates of Compliance (COCs) based on its validity period consistent with DAO 2010-23 provision, which states that COCs issued shall be valid for six years from date of issue unless otherwise

revoked or suspended.

The DENR also denied CAMPI's request to suspend the implementation of emission limits/standards for heavy duty vehicles. CAMPIs wanted to exclude heavy duty vehicles because this was never part of the discussions on standards both in the local and ASEAN levels until such time that appropriate consultations have been undertaken.

“If not appropriately addressed, this will cause a major setback at a time when the automotive industry is experiencing unprecedented growth,” the letter added.

In its letter to Domingo, CAMPI did not ask for a specific lead time by which they can comply with emission standards, but a CAMPI source said they are asking for a two-year lead time.

CAMPI explained to Domingo why it is impossible for them to meet the January 1, 2016 deadline.

Foremost, all production models currently registered under the Motor Vehicle Development Program (MVDP) have Euro 2 COCs.

“It is technically impossible for our members to produce Euro 4 compliant vehicles by 01 January 2016, and it will not make economic sense to continue producing Euro 2 vehicles by this date if we cannot sell these in the domestic market,” CAMPI said.

CAMPI stressed this will impact on vehicle sales and distribution of imported completely built-up packs, which now account for more than 60 percent of total CAMPI sales.

According to CAMPI, there are CBU models with existing Euro 2 COCs that are scheduled for Euro 4 compliance later than 01 January 2016. Even brand principals in Europe, where Euro 6 standard came into force in September 2014 will also have to adjust their production systems to meet the requirements of the Philippine market when emission standards shift from Euro 2 to Euro 4.

“Therefore, the DAO will affect total vehicle sales, not just completely knocked-down (CKD) sales,” he said.

In the case of CKD, CAMPI said the alternative scenario would be to serve the market with Euro 4 compliant CBUs, but which also negates the thrust of the government to revive the manufacturing sector.

Some CAMPI members are registered under the MVDP, which is being implemented by the DTI/Board of Investments. They have a combined maximum production capacity of 180,000 units/year and account for nearly 100 percent of total production volume with output reaching 86,238 units in 2014. Therefore, they are also the main customers of the majority of local parts manufacturers.

“Standards involve industrial policy especially when manufacturing industries exist. The current Euro 4 scenario does not support the policy direction of the government to revitalize the automotive manufacturing industry,” the letter added.

In terms of impact on employment, CAMPI said that direct employment in automotive core activities was estimated at 85,000 in 2010 supporting approximately 400,000 population.

CAMPI represents the majority of vehicle brands and therefore, plays a big role in automotive-related activities in the Philippines.

“Employment losses from one sector will definitely create a cascade effect in other automotive sectors,” said CAMPI.

While CAMPI has acknowledged the goal of DENR to address the worsening air pollution problem, which will benefit the society in general, the group also urged government to also seriously consider the risk of economic loss involved.

Even if the technology exists in other countries, CAMPI said it should not be assumed that such technology can be readily adapted in the Philippines. Technology deployment, like parts development and vehicle engineering, follows a specific lead time because the Philippine automotive industry is part of a regional/global production and supply network that follows a strictly coordinated long-term production planning schedule.

CAMPI cited the 2+2 concept, which has been the guiding principle in the adoption of emission standards in the past – the shift from non-Euro to Euro standards as exemplified in DAO 2007-27 and DAO 2010-23. The concept is the Japan Automobile Manufacturers Association-recommended adoption plan schedule for ASEAN Automotive Federation Members to overlay transition of emission standards. The concept underscores the value of sufficient lead time in consideration of the production planning cycle.

In addition, CAMPI cited the Department of Energy earlier pronouncement that oil refineries were scheduled to commence commercial production and some importers set their import sourcing schedule for Euro 4 fuels on 01 January 2016 yet. “It goes without saying that the Philippine market is not completely ready for advance Euro 4 implementation,” the letter added.

The availability of Euro 4 fuel is important because the use of non-Euro 4 fuel on a Euro 4 vehicle would result in a shorter life of the vehicle's aftertreatment system and/or may lead to drivability problems; and even worse, engine stalling. The inconvenience will ultimately fall on vehicle buyers/ owners.

Emission standards should be a concern for other policy makers in terms of economic considerations, including consumer impact, CAMPI said. (BCM)