RP Can be 2nd Regional Auto Hub with Right Perks
The Philippines could be the best bet as the second regional hub for the global auto players provided the right government incentives support and commitment of players to invest and expand operations to attain a global manufacturing scale of 500,000 units by 2020, an automotive study by the Deloitte Economics (Australia) said.
The Deloitte study entitled, “The Future of the Philippine Automotive Industry,” which was unveiled in public on Thursday last week’s 1st Philippine Auto Summit, premised its conclusion on some advantages and disadvantages prevailing in the country over its competitors.
These advantages include an already established presence of several global automotive players in the country, a strong auto components sector, capable workers, English language, a domestic market that is ready to take off, and government understanding on the importance of the auto manufacturing industry.
“These advantages are real and could support the development of a world scale industry,” said Jon Stanford, lead author of the Deloitte report.
“The domestic market is virtually moribund since 1996, has not yet entered a high growth phase but is due to take off and the government also recognizes the importance of this sector,” said Stanford.
After the economic recession that left the automotive sector badly scarred, global auto players need to rebuild.
While Thailand is the clear beneficiary of much of the investment in the auto industry in the ASEAN region, will the industry want to put all of its eggs into one basket? The automotive market in the ASEAN region is expected to reach 2.5 million in 2010.
“There are clearly some risks in doing so. By allocating significant investment to develop a second production hub some of this risk could be offset,” the study said.
The study noted that global auto players need to develop a second hub in the region because if something happens in Thailand, which exports half of its 1.5 million units annual production not just to other ASEAN countries but also to Australia and other markets, businesses would definitely suffer.
Two other ASEAN countries, Malaysia and Indonesia, also have stronger auto industries than the Philippines. To some degree, with its emphasis on the national car program, Malaysia is a special case, but Indonesia is in some ways similar to the Philippines, the study added.
Indonesia plays host to many of the same companies and the industry is basically focused on assembly. Yet Indonesia has a larger and much faster growing vehicles market than the Philippines. The Indonesian auto industry produces around eight times as many vehicles as the Philippines and its annual exports are greater than the entire production of the Philippines industry.
The study noted that with the movement to free trade between ASEAN countries (intra-ASEAN tariffs on vehicles will fall to zero in 2010), the situation is now very different from when the various auto industries within the region became established.
The key question now is where the global auto players will place their future investment dollars. The effects of free trade together with the impact of the global financial crisis means there will be significant commercial pressures on companies to rationalize their production centers within regional and global supply chains.
According to the study, Indonesia is the Philippines’ closest competitor.
At present, Indonesia exports 85,000 CBU units to ASEAN. The Philippines though has only one volume CBU exporter in Ford Philippines.
There are several challenges, however, that are facing this industry, including: Small and slow-growing domestic market, small-scale vehicle assembly plants, high rate of growth of cbu imports (CBU share of the market has grown to 50 percent from 13 percent in the past five years), high level of secondhand imports in last decade, weak local components supply base due to lack of scale, high logistics and energy costs, significant cost competitiveness disadvantage, reduced protection against imports from Japan (JPEPA), and approaching intra-ASEAN free trade as a result of AFTA.
Stanford noted that while the Philippine auto industry has a strong auto parts sector with internationally competitive firms, it needs a viable assembly industry operating at scale.
By BERNIE CAHILES-MAGKILAT, Manila Bulletin
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