High costs impair automakers

THE Philippine auto industry pales   in comparison to its other Southeast Asian counterparts due to a cost disadvantage arising from a lack of scale, according to a study commissioned by several assemblers.

The study done by Deloitte Touché noted that the domestic auto sector boasts of the presence of major global players, and “well-trained and relatively efficient” workforce.

The study, however, said that the industry is beset by a small and slow-growing domestic market, small-scale vehicle assembly plants, a high rate of growth of CBU (completely built-up) imports, a high level of second-hand imports, a weak local components supply base high logistics and energy costs, and a significant cost competitiveness disadvantage.

Deloitte Touché said the Philippine auto industry also suffered from reduced protection against imports from Japan due to the Japan-Philippines Economic Partnership Agreement (JPEPA), and the Asean Free Trade Agreement (AFTA).

“The Philippine [auto] industry currently faces a cost disadvantage, on average, of at least $1,000 per car relative to Thailand. Many of the problems identified above contribute to this cost disability, but the fundamental reason is lack of scale,” the management consulting firm said.

“If the Philippines is to succeed in the auto industry, it will need to achieve an efficient scale of production, become more export-oriented and increase local content. This will require very substantial investment,” the study said.

“This investment is unlikely to occur in the Philippines unless the government provides the industry with sufficient incentives to bridge the cost gap for an interim period to allow it to move towards achieving critical mass,” it added.

The Philippine Automotive Competitiveness Council Inc. (PACCI)—a newly formed association composed of the Motor Vehicle Parts Manufacturers Association of the Philippines, Ford Motor Co. Philippines Inc., Honda Cars Philippines Inc., Isuzu Philippines Corp., Mitsubishi Motors Philippines Corp. and Toyota Motors Philippines Corp.—on Thursday released to media a summary of the Deloitte study, which was discussed during the First Philippine Auto Summit.

Deloitte last year was commissioned by local auto players, mostly PACCI members, to evaluate the present state of the industry, analyze its potential for development and provide some policy recommendations to the government. –Ben Arnold O. De Vera Reporter, Manila Times