Auto firms to get old perks

…as new industry development program hits delays

AN OLD INCENTIVE PACKAGE for automotive exporters will be temporarily revived while work to upgrade a broader policy for car assembly remains stalled, officials last week said.

The move will allow interested vehicle manufacturers to sign on to the export program which had attracted only Ford Group Philippines when registration ended in 2008. It will also prevent an impending policy gap as Ford is slated to stop enjoying export perks by end-2011 under the current program.

This comes as implementing rules for the new Motor Vehicle Development Program — a policy framework that lays down tax perks and market protection for the local industry — will not be ready this year as earlier promised.

“It is further delayed. Our motor industry is truly on a crossroad and we must attend to it with much circumspection,” Board of Investments (BoI) managing head Cristino L. Panlilio said in a text message.

While relevant provisions on motorcycles will be ready for public consultation next week, those on cars and trucks cannot be finalized yet, Mr. Panlilio said.

In the meantime, the state agency will be “extending the export perks,” he said.

“There are plans to issue an extension of the program,” BoI Executive Director Efren V. Leano echoed in a separate text message.

A policy vacuum would continue to prevent the government from enticing more car assemblers to ship out their finished products since the registration portion of the Automotive Export Program lapsed two years ago.

The export policy, laid down via Executive Order 244 in 2003 to complement the old Motor Vehicle Development Program, awards credits to car manufacturers for every unit they sell abroad. The credits, known as “Net Foreign Exchange Earnings,” can then be used to pay for tariffs on imported units they sell in the Philippines.

Exporters, in principle, are rewarded with a cost advantage in the domestic market. The country, in turn, would enjoy benefits from higher volumes of production needed to serve markets abroad.

If the old program is reimposed, new registrants will have to ship out 10,000 units per year with each costing at least $5,000 according to EO 244. They will then be able to earn export credits for five years for each unit sold, with the amount decreasing per year.

These credits can be used to pay off import tariffs which are set at rates lower than that slapped on non-exporters. Assemblers registered with the export program, for instance, will only have to pay 20% tariff on a vehicle that would have otherwise been levied a 30% duty.

The program, however, offers no incentives for car part exporters, an issue Toyota Motor Philippines Corp. has raised.

Ford Group Philippines, meanwhile, said it so far remained unperturbed.

“Ford is still eligible to the standard incentives package available to automotive firms registered under the Automotive Export Program,” its assistant vice-president for communications, Anika Salceda-Wycoco, said in an e-mail.

A check with the BoI confirmed that the car maker will still be able to earn export credits next year and use these until 2013.

“We forecast 2011 full-year production for both domestic and export markets that we serve to be about the same as this year,” Ms. Salceda-Wycoco said.

The company has shipped out 7,946 units from January to October this year, up 37% from the year-ago figure, she added.

A group of car and part makers, meanwhile, emphasized the “urgency” of completing the new industry development program’s implementing rules.

“While the intention to craft a better strategy for domestic automotive manufacturing is viewed as a welcome opportunity for this industry, there remains an urgency to support its quest to become a serious competitor within [Southeast Asia] as it transforms to an integrated regional economy,” Philippine Automotive Competitiveness Council, Inc. Executive Director Benjamin C. Sevilla said in an e-mail.

“The government is looked upon as an important stakeholder and ally to allow domestic automotive manufacturing to reach its optimum potential… The parts and auto manufacturers remain highly committed to make this happen,” Mr. Sevilla said.  –JESSICA ANNE D. HERMOSA, Senior Reporter, Businessworld