IT escaped the attention of most of the media and the public, wrapped up as we have been in our ongoing traffic gridlock drama, but at the end of last week, a $200 million (P9.35 billion) investment that would have brought a European auto manufacturer to the Philippines was put back in someone’s briefcase and carried off to somewhere else, probably Thailand.
For nearly a year, Volkswagen has been mulling the idea of setting up a manufacturing facility in the Philippines, both to bolster its local market share (VW only sold about 600 vehicles in the Philippines last year) and to serve its wider market in Southeast Asia.
Strung along by the promise of a forthcoming automotive industry “road map,” VW patiently waited until the government—finally, after about 16 months of dithering around with it—released the “Comprehensive Automotive Resurgence Strategy [CARS] Program” with Executive Order 182, signed by President BS Aquino 3rd this past May 29.
The CARS Program, according to the Department of Trade and Industry (DTI), can be expected to create 200,000 direct and indirect jobs, boost vehicle production levels in the Philippines to 100,000 units per year, attract about P27 billion in new investments in vehicle parts and components, and contribute up to 1.7 percent of the country’s GDP. Under the program, three automakers would be given incentives worth about P9 billion each, and in return would be expected to produce a minimum of 200,000 vehicles in six years, or 33,000 per year.
Volkswagen, which was prepared to invest up to $200 million to start a manufacturing operation here, was projecting a production volume of about 25,000 units—10,000 for the Philippine market, with a further 15,000 for export throughout the region. That 25,000 target is still extremely ambitious for a new manufacturing concern, and it is not far off the 33,000 unit requirement. But once BS Aquino signs his name to something, the requirement (for anyone who has not accompanied him to the gun range, that is) is about as flexible as the Ten Commandments, and so with a definite note of finality, Volkswagen announced it was no longer interested and was “moving on.”
Thailand and Indonesia will now compete for the German automaker’s business. VW, by the way, surpassed Toyota as the world’s largest auto manufacturer in the first half of this year.
Other potential candidates, such as Ford, Isuzu, and Honda, have also expressed misgivings about the manufacturing volume requirement in the CARS program, and while the would-be manufacturers are diplomatic about it, the clear implication is that the incentives being offered for automakers to pursue what is really an unrealistic target are wholly insufficient.
Interviewed by The Manila Times back in June, Federation of Philippine Industries chairman George Chua was somewhat more specific, pointing to the lack of incentives to offset two of the biggest concerns of the automotive sector, high labor costs and thoroughly uncompetitive electricity costs.
“I’m afraid it [the CARS Program]may not be enough to attract foreign companies into the car industry,” Chua concluded, pointing out that Thailand not only offers various tax incentives, but also deductions of transportation, electricity, and water supply costs, and partial tax deductions on infrastructure construction and installation costs.
The DTI at the time commented on the glaring difference between what Thailand is willing to offer and what the Philippines considers “incentives” in a reasonable, non-committal way, saying that they are always open to studying ideas that could boost the manufacturing sector. The Department of Finance, on the other hand, responded the way everyone within PNoy’s near perimeter always does, dismissing better incentives as threats to revenue—apparently still never having grasped that chasing business away results in precisely zero additional revenue.
As disappointing as the CARS program is, especially after stakeholders’ having waited so long for it to actually be presented, we should not be surprised at the reception it’s gotten, because it is typical of the bastardized perspective this Administration has always had toward attracting investments. As VW Philippines President John Orbeta pointed out to Business Mirror last week, the CARS program “is favorable to incumbents.” In “road map” after “road map”—about two dozens of them have been produced under this Administration—incentives that only established industry players could possibly claim are offered, almost as a sort of “loyalty reward” that new entrants have no chance of collecting.
So, the CARS program is most likely a dud. Perhaps that’s just as well; with the deteriorating state of Philippine infrastructure and the unmanageable gridlock around Metro Manila, buying a car is perhaps not quite as appealing as it once was. Maybe the automotive sector should take a break for the next eight months or so, and wait for a new Administration that hopefully has a grasp of investment strategy, or for that matter, basic management.