Why Japanese carmakers are threatening to leave Philippines

**_Cathy_** · August 21st, 2014 04:55 PM

Why Japanese carmakers are threatening to leave Philippines
By Rosemarie Francisco, Reuters
Posted at 08/21/2014 9:14 AM | Updated as of 08/21/2014 9:29 AM

MANILA - Top Japanese automakers in the Philippines are threatening to shift production to cheaper Southeast Asian countries as the government drags its feet on a plan to rebuild its shrinking car manufacturing industry.

The potential pullout of production lines by Toyota Motor Corp and Mitsubishi Motors, which have a combined 50,000 vehicle annual capacity in the country, would mean the Philippines could lose more than 1,000 jobs and millions of dollars worth of planned and existing investments.

Time is running out, industry officials say, because there's less than two years left in the term of President Benigno Aquino, who has been backing the plan.

"I believe that if this does not get approved this quarter and signed by the president by the end of the year and even in the first quarter next year, then let's forget about it because nothing will happen anymore," said Ferdinand Raquelsantos, head of the motor vehicle parts industry group MVPMAP.

The original government plan includes tax incentives to help rebuild the country's tiny auto industry and turn it into a major manufacturing hub.

But two years of government and industry debates, revisions and disagreements over how best to grow the auto sector have carmakers saying they may move to cheaper countries like Malaysia and Indonesia.

The reforms have also been delayed because Manila wants the industry to ramp up production first to produce 40,000 units of a single car model annually before they can use the incentives. Industry insiders say only Toyota could meet that requirement with no incentives.

The carmakers had hoped to capitalise on the government roadmap to boost local production after car sales hit record highs for several months this year on robust consumer spending, and vehicle ownership remains the lowest among Southeast Asia's five biggest economies at just around 35 per 1,000 people.

"We have been telling the government, please issue the roadmap so there will be a clear policy direction and basis for Toyota's investments in the Philippines," Rommel Gutierrez, spokesman of Toyota Philippines, told Reuters. Gutierrez also serves as president of the auto industry group CAMPI.

"The mother company in Japan has many options, Thailand, Malaysia, Indonesia...As early as now, it is already scouting (for locations)," Gutierrez said, adding it's debating whether to continue production of Vios compact and Innova in the Philippines in the absence of clear policy direction.

The Philippine unit of Mitsubishi Motors, which has been planning to more than triple its existing capacity after purchasing a former Ford Motors plant earlier this year, hasn't decided on starting local production of new models.

"Without the EO (executive order), I am not so sure if we will launch a new car or not," Hikosaburo Shibata, president and chief executive of Mitsubishi Philippines, told Reuters.

RUNNING OUT OF TIME

Government officials declined to comment on a target date for the roadmap, but automakers say based on discussions with the government the plan will likely be released this year.

"We have to balance. It's always a cost-benefit trade-off," said Trade Secretary Gregory Domingo, adding the government is continuing consultations with industry and state agencies.

Carmakers are hoping the plan will include adequate fiscal and non-fiscal incentives such as tax credits and common testing facilities for auto parts makers to ease manufacturing disadvantages. It costs around $1,800 to $2,000 more to produce a locally assembled car than it is to import a complete vehicle, according to industry estimates.

The Philippines ceased being a car exporter after Ford closed local production in 2012 partly due to increasing imports of pre-owned cars, most of them smuggled, and tariff relaxation after trade deals.

Why Japanese carmakers are threatening to leave Philippines | ABS-CBN News

**Monseratto** · August 21st, 2014 05:50 PM

It's cheaper to import because of treaty bound lower tariffs than manufacture here because of wishy washy tariff rules and other red tape...

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**dr. d** · August 21st, 2014 06:03 PM

is it true that new zealand does not manufacture a single automobile? how is its economy?
of course, NZ has more cows than humans..

what are the pros and cons of a car manufacturing ability in our country, vis a vis full importation?

**safeorigin** · August 21st, 2014 06:23 PM

Originally Posted by dr. d

is it true that new zealand does not manufacture a single automobile? how is its economy?
of course, NZ has more cows than humans..

what are the pros and cons of a car manufacturing ability in our country, vis a vis full importation?

a country's ability to manufacture cars doesn't necessarily equate to prosperity. There are various goods and services to attain prosperity.

car manufacturing, however, requires a mature industrial base and cheap enough resources such as electricity, gas, etc. Workers must be skilled and experienced.

obviously, manufacturing cars in the Philippines is an expensive endeavor. We have relatively expensive(and mutinous) labor that have to be replaced often. We have expensive electricity and ****-load of red tape.

contrary to what most people believe, it is actually a good thing that manufacturers are leaving because they don't have to sell their products at a steeper price. What is bad, however, is that the government keeps on repeating the same mistakes believing it will solve the problem when it's actually making it worse...

**crosswind** · August 21st, 2014 07:35 PM

I hope maayos din ng goverment yan
kung no, Millions of people will lose their job and the Philippines economy
will go down

**machinepistol** · August 21st, 2014 08:03 PM

I agree. Cost-wise, car manufacturing is not a viable industry here. Pasukan lang yan ng unyon, tapos ang negosyo. Look at what happened to Kimberly Clark, Firestone and Temic Telefunken and Colgate, to name a few.

**funkeemunkee** · August 21st, 2014 08:14 PM

Originally Posted by dr. d

is it true that new zealand does not manufacture a single automobile? how is its economy?
of course, NZ has more cows than humans..

what are the pros and cons of a car manufacturing ability in our country, vis a vis full importation?

True. All manufacturing is across the ditch, AUS. Import cars from Japan, Singapore etc. abound and are cheap compared to PHL prices, since the only duty levied is GST.

Btt, difficulty in doing business in the PHL is one reason why we have been overtaken by our ASEAN neighbors. We missed the Japan boat before to Thailand and Indonesia and more manufacturers are eyeing our neighbors' shores for operations. It is a policy issue government has to address asap.

Full importation would not be feasible, as this would hike up car prices as the PHL has heaps of taxes left and right.

**dr. d** · August 21st, 2014 08:27 PM

Originally Posted by machinepistol

I agree. Cost-wise, car manufacturing is not a viable industry here. Pasukan lang yan ng unyon, tapos ang negosyo. Look at what happened to Kimberly Clark, Firestone and Temic Telefunken and Colgate, to name a few.

would-be strikers should talk first to the ex-employees of these companies that closed down because of labor problems. they may find out that they were actually being treated much better than what the law allows..
ang daming nag-sisisi dahil naniwala sila sa mga strike-inciters na hindi naman pala empleyado ng kumpanya...

**niky** · August 21st, 2014 08:43 PM

Car manufacturing has knock-on benefits, if the government can lower attendant costs. There's employment and business opportunities for suppliers, for service providers who cater to the employees of manufacturers and suppliers, and etcetera.

And it can be profitable enough to make it worth the while of the manufacturers, if enough units are produced.

New Zealand is screwed because they're a tiny market that's too far away from anyone to act as a manufacturing hub.

The Philippines is a big potential market in the middle of the fastest growing economic powers of the century. To not have any car manufacturing capacity locally would be a crime.

The big problem with the proposed stimulus package is the ludicrous 40,000 unit requirement. What the **** were they smoking when they came up with that number? Who the **** expects any manufacturer to sell 40,000 of a single model in a year when the entire market is less than 250,000 units?

They have to invest in the eggs first before expecting chickens. I say, give full benefits to any car that's locall produced... even if the production run is one unit. Hell... every completed unit should retroactively qualify the manufacturer to a 100% discount on taxes for imported raw materials and components.

**falken** · August 21st, 2014 08:51 PM

Originally Posted by dr. d

would-be strikers should talk first to the ex-employees of these companies that closed down because of labor problems. they may find out that they were actually being treated much better than what the law allows..
ang daming nag-sisisi dahil naniwala sila sa mga strike-inciters na hindi naman pala empleyado ng kumpanya...

Which also led to contractualization.

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