Positive outlook for automotive sector

Amid rising demand for vehicles and available tax incentives, the government is hopeful it can attract more investments and revive the local automotive manufacturing sector.

In May this year, the local automotive industry which has been waiting for the announcement of the government program to support vehicle manufacturing received its wish as President Aquino approved Executive Order (EO) 182 covering the country’s Comprehensive Automotive Resurgence Strategy (CARS) Program.

The Department of Trade and Industry (DTI) is confident investments would be made in the sector following the release of the program.

“We will not do this EO if we are not confident. We are confident the car manufacturers will participate in this program,” DTI Undersecretary Adrian Cristobal Jr said.

Under the program, the government will give a boost to local vehicle manufacturing operations through the creation of an Automotive Development Fund in the national budget over a sixyear period beginning next year.

The program will have a total allocation of P27 billion to be used to support the assembly of three vehicle models, with each entitled to a maximum of P9 billion in the form of tax payment certificates.

For a vehicle model to be enrolled in the CARS, the car manufacturer should have a planned volume of production of at least 200,000 units over a maximum period of six years.

The enrolled vehicle model should also involve investments in body shell assembly and large plastic parts, be fuel efficient, and comply with emission level standards determined by government.

Based on DTI’s estimates, the implementation of the CARS Program would translate to at least P27 billion investments in new parts manufacturing, a minimum of 600,000 vehicles produced and total economic activity worth P300 billion contributing 1.7 percent to the country’s gross domestic product.

Through the program, the goal is to enable local vehicle industry players to tap opportunities in the regional supply chain and to position the country as a competitive automotive manufacturing hub in the region.

Local vehicle players are interested in participating in the program as such would give them an opportunity to take advantage of the rising demand for cars.

“This program is timely in view of the need of the Philippine motor vehicle industry to achieve competitiveness in the region, giving opportunity to the country’s automotive industry to take part in the regional supply chain,” Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) president Rommel Gutierrez said.

The CAMPI sees the program as a positive development given the need to reduce the gap between a locally assembled vehicle and imported unit from Southeast Asian neighbors amounting to $2,000.

According to the Asean Automotive Federation, the Philippines remained to have the lowest motor vehicle output at 37,079 units as of end-May in the region.

Other countries produced more such as Thailand (783,553 units), Indonesia (486,172 units), Malaysia (276,355 units), and Vietnam (62,919 units).

Japanese firms with existing local assembly operations are interested in participating in the program.

Toyota Motor Philippines Corp. president Michinobu Sugata said the carmaker would consider applying its Vios sedan, its strongest product in the passenger segment, which had an annual production of 26,000 units last year.

Froilan Dytianquin, vice president for marketing services at Mitsubishi Motors Philippines Corp. said the company and its parent firm Mitsubishi Motors Corp. are jointly undertaking a study for the assembly of a vehicle model under the CARS.

Isuzu Philippines Corp. president Hajime Koso said the firm is interested in participating in the program but would want to see the implementing rules and regulations (IRR) before conducting studies.

While Honda Cars Philippines Inc. (HCPI) and Nissan Philippines Inc. (NPI) are interested in taking part of the program, both acknowledge the difficulty to comply with the minimum volume requirement of production.

“It is not easy for us to be applicable to the CARS program because we are just selling about 9,000 units of the City now…I expect the IRR will give us more flexibility,” HCPI president and general manager Toshio Kuwahara said.

“We would do our studies on the possibility of going into the CARS…The 200,000 minimum volume is not easy to do. That’s very prohibitive. It will take a lot of careful study to review that,” NPI president and managing director Antonio Zara said.

Despite the concerns raised on the minimum volume requirement, Cristobal said the government expects the program would be implemented and have participants that share the goal of making the country an attractive destination for investments in car manufacturing.

The DTI is aiming to complete the IRR for the CARS within the month.

Based on DTI’s estimates, the implementation of the CARS Program would translate to at least P27 billion investments in new parts manufacturing, a minimum of 600,000 vehicles produced and total economic activity worth P300 billion, contributing 1.7 percent to the country’s gross domestic product.