• Small parts makers snubbed by car production program


    Ben D. Kritz

    EVER since the scheme was first hatched sometime in 2013, there has been something just a bit “off” about the Philippines’ Comprehensive Automotive Resurgence Strategy, or CARS program, which was intended to encourage the production of hundreds of thousands of vehicles in the country.

    This week, the unintended consequence revealed itself when the head of the Philippine Parts Maker Association Inc. (PPMA) disclosed that small and medium parts manufacturers—the very domestic sector that was supposed to benefit the most from the mass production program—was virtually being frozen out by the two automakers that signed up for it, Toyota and Mitsubishi.

    The idea behind the CARS program was not too different from Mao Tse Tung’s brilliant idea to have everyone in China manufacture steel in their backyards: Entice auto manufacturers to increase their production of a single model by several orders of magnitude to reach 200,000 units over the six-year lifespan of the plan, which would not only generate several thousand jobs in the factories themselves, but boost the entire domestic supply chain. As an incentive, each manufacturer —the program would be limited to three—could receive up to P9 billion worth of government support during the program.

    Although the government of BS Aquino 3rd suggested that the vehicles would find customers in the export market, the 200,000 unit requirement was rather arbitrary, and well beyond the existing capabilities of automakers in the Philippines. Only Mitsubishi and Toyota, who will be producing the low-end Mirage and Vios models, respectively, were willing to take the chance on CARS; up to now, the government has failed to attract the third industry player.

    Even so, 400,000 cars should mean a lot of work for the local industry, but the anticipated windfall of new business hasn’t happened for local parts manufacturers, and probably never will.

    PPMA President Ferdinand Raquelsantos complained in a written statement on Monday, “What happened to the objective of boosting the local production and supply of SME’s? It seems that the Local Car Assemblers have totally ignored the local SME supply chain and have just focused on their own Japanese-affiliated suppliers.”

    Even though Mitsubishi has certified 25 local companies to supply some of the parts for its Mirage model—which will begin production in April—and Toyota has announced that 30 local suppliers will be providing 317 part numbers for its Vios line that will start rolling in August 2018, Raquelsantos said that most of these suppliers are either familiar Japanese parts makers with facilities here, or large local manufacturers. The SMEs, Raquelsantos said, are now struggling for survival, and neither manufacturer has indicated plans to tap them for parts in later phases of the program.

    This sorry state of affairs is the result of a program rushed to implementation, based on an arbitrary measure that was not at all grounded in market reality, but rather chosen to give the Aquino administration a big number to brag about. The same thing happened in China during the “Great Leap Forward” in 1958 to 1962. Chairman Mao decided steel production was an indicator of a growing economy, and so steel was produced—in 600,000 backyard furnaces, mostly on farms, where the finished product was just about one would expect from people who were much better at growing rice and raising pigs—poor, if usable at all. The harebrained scheme was, as a result, a significant factor in China’s suffering the worst famine in its history not long afterwards.

    In devising the CARS program, no one really considered whether the Philippines actually needed or wanted that many of a single model vehicle from any manufacturer, or could absorb the production into the market, or find a sufficient number of export customers to soak up the excess. No one really considered just what is involved in creating a manufacturing for any model car, either.

    Unfortunately for the members of Raquelsantos’ organization, the CARS program as designed probably doomed them from the start. In order to support a high-volume manufacturing operation, a parts supplier has to be able to produce parts to specific and consistently exacting designs and engineering tolerances, and deliver specific quantities of these parts at very specific times to keep the assembly lines moving smoothly.

    That can all be worked out, of course, but it sometimes takes years, and the amount of time it takes is inversely proportional to the existing capabilities and experience of the prospective parts supplier. The large suppliers, particularly ones that have been working with the manufacturers for extended periods of time and in large volumes, are able to properly configure themselves for supply to a new line much faster and with much less hassle than a new supplier. Given the pressure being applied by the government to get the CARS program rolling quickly, the automakers really had no choice but to go with the bigger suppliers, even if they wanted to invest the extra time in cultivating SME parts makers.

    One can hope that Mitsubishi and Toyota, which have both established a strong business presence in the Philippines, do not eventually regret having become tied up with CARS, but considering the overall lack of foresight that seems to have gone into the program, that seems like a distinct possibility. For many of the domestic businesses the program was supposed to help, however, it is already too late.



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