The Comprehensive Automotive Resurgence Strategy (CARS) Program just approved by President Benigno Aquino 3rd may not be enough to make the Philippine vehicle industry competitive against its Southeast Asian neighbors, an industry leader said, although the plan has the full support of automotive manufacturers.
George Chua, president of the Federation of Philippine Industries (FPI), told The Manila Times on Tuesday that the CARS Program does not address issues that domestic manufacturing firms have been wrestling with, particularly uncompetitive power rates and labor costs.
Chua said Thailand and other countries offer a more comprehensive package of incentives other than tax perks to boost their vehicle manufacturing industries. He added, however, he has yet to read the program in its entirety and just got an overview of it from the newspapers.
“I’m afraid it [CARS Program] may not be enough to attract foreign companies into the car industry,” he said.
“Thailand has incentives to lower power rates,” Chua added.
The website of the Trade department of Thailand says Bangkok extends an incentive to lower the power bills of companies involved in car manufacturing beside the usual tax incentives.
The other incentives are: a five-year 50-percent reduction in corporate income tax on net profit following the expiration of the corporate income tax holiday; 10-year double deduction of transportation, electricity and water supply costs; and deduction from net profit of 25 percent of investment in infrastructure installation and construction costs.
Chua said the imposition of a minimum wage takes away the capability of manufacturers to determine wages based on meritorious performance, while power rates in the Philippines remain high compared with those of its Southeast Asian counterparts.
“I don’t see anything being done on competitiveness on those two fronts, electricity and labors costs, which remain high,” said Chua, who is also the president and chief executive officer of Bayan Automotive Industries Corp., which sells the BAIC Chinese car brand in the Philippines.
Another group, the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi), sounded supportive of the passage of Executive Order 182 and acknowledges the government’s effort to prop up the country’s vehicle and vehicle-parts industries.
Rommel Gutierrez, president of Campi, said the CARS Program is timely because there is a need to raise the competitiveness of the country’s automotive industry.
“CAMPI is confident that this program will be a catalyst for sustained growth of the automotive industry, particularly the manufacturing industry,” he added.
Gutierrez said the new auto industry roadmap gives players a chance to also take part in the supply chain in the region, or to manufacture parts that may be required by other car factories in Southeast Asia.
No niche market
Meanwhile, Nissan Philippines Inc. president and Managing Director Antonio Zara in an earlier interview with The Manila Times said any new vehicle industry development plan is not likely to work if it results in the Philippines going up against the vehicle industry of Thailand.
Thailand, according to Zara, has concentrated on manufacturing pick-ups instead of sedans because there are many factories in the world that are already into fabrication and assembly of passenger cars.
“At one point, [the Thai]government decided they want to be the pick-up manufacturer in the world. And then people said, ‘Why pick-ups, there are few pick-ups sold in the world, why not build cars?’ But then the Thailand government said there are too many players in the car segment, the sedan. Let’s just own this niche [pick-ups],” he said.
Today, Thailand is the biggest pick-up manufacturer in the world outside of the United States, where the most preferred pick-ups are still full-sized. It boasts of producing large numbers of mid-sized pick-ups, like the Mitsubishi Strada and the Ford Ranger, among others. About 40 percent to 50 percent of vehicles sold in Thailand are also pick-ups, Zara added.
He said Thailand and Indonesia’s vehicle industries are focusing on manufacture of small cars, and that the Philippines can still the eye the manufacturing niche for vans.
“Not many countries really build vans, because it’s a small segment. But maybe we can build vans and build them for the world. That’s where we have a chance to export vehicles,” Zara added.
200,000 new jobs
According to the Department of Trade and Industry (DTI), the CARS Program is “expected to create 200,000 direct and indirect jobs” over six years. The average incentive per year is worth P4.5 billion to support the local production of vehicles. The DTI said the incentives will “attract more than P27 billion in new parts manufacturing investments” and generate “economic activity estimated to be worth P300 billion over the life of the program,” which would mean about 1.7 percent in contribution to the country’s gross domestic product.
The program eyes a production level of 600,000 per year.
The CARS Program calls for fiscal and non-fiscal incentives to jumpstart revitalization of the country’s automotive industry, improve its competitiveness and elevate the country into an auto manufacturing hub in the region.
The program is designed to build and grow the parts-making capability of the auto industry, “for without a robust parts-making industry, our-car making industry will remain uncompetitive. The CARS Program is about building capabilities and jobs to make our automotive manufacturing industry competitive in Asean [Association of Southeast Asian Nations],” Trade and Industry Secretary Gregory Domingo said.
It calls for new investments in manufacturing parts not currently available in the country, like large car body panels, bumpers, instrument panels, head lamps, shock absorbers, plastic fuel tanks, automotive fabric and others. The technology “spill over” will help develop basic support industries for manufacturing, such as casting, forging, machining and tool and die.
The CARS Program offers a package of time-bound and performance-based fiscal incentives to support new investments in fixed capital expenditures in new parts-making capability and to encourage large-scale production in vehicle assembly.
The Executive Order on the CARS Program is expected to be published in newspapers of general circulation within the next few days.
WITH Voltaire Palaña AND Catherine Talavera