Local auto makers need more than just incentives

The government is looking at more interventions aside from the grant of fiscal incentives in boosting the competitiveness of the local automotive industry and put it at par with its regional counterparts.

“Based on our analysis, the grant of fiscal incentives is not the ‘first best’ option that would narrow down the huge cost-production handicap, although we identified those incentives as a policy response,” Trade Assistant Secretary Rafaelita M. Aldaba said during a consultation with different sectors on the Investment Priorities Plan (IPP) for 2014.

Aldaba said “more focused” programs consist of curbing the smuggling of vehicles and improving the productivity of automotive assemblers and their domestic suppliers are what the industry needs.

To attain economies of scale and lower production cost, productivity must be increased, Aldaba said.

Right now, she said, the grant of fiscal incentives to auto manufacturers would not fully address the high production gap that the Philippines has compared to its Association of Southeast Asian Nations neighbors, particularly Thailand and Indonesia.

An industry study showed that the production cost for motor vehicles in the Philippines is “at least a thousand dollars per unit more expensive” than in Thailand. Naturally, Aldaba said, the cheaper imports from Thailand would have the advantage over the locally assembled vehicles.

“There is a huge production, handicap, especially when we compare the cost with those of Thailand, which is already manufacturing millions of cars,” Aldaba said during the consultation with private stakeholders.

The motor-vehicle assembly, parts and manufacturing sector currently enjoys income-tax holidays. The industry is likely to retain the fiscal incentives it is enjoying, as motor-vehicle assembly is still included on the preliminary list of preferred activities that would qualify for perks under the draft 2014 IPP.

Fiscal incentives will likely be given to parts manufacturing and other allied industries, as well. The Philippines last year churned out 180,000 locally produced vehicles out of the total 210,000 units sold in the domestic market. Thailand’s capacity, in comparison, is 2 million vehicles annually

As of end-April, the local automotive industry posted a year-to-date growth of 22.1 percent, as sales reached 69,737 units against 57,128 units in the same period last year.

“In March the overall outlook for April was lower because, historically, the Holy Week month registers lower sales due to few selling days. The market volume for April, though, was still notable and went beyond what we have anticipated,” said Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) President Rommel Gutierrez.

According to the joint Campi-Truck Manufacturers Association report, sales in both the passenger-car and commercial-vehicle categories increased in April compared to the same month in 2013.

This is credited to the stable demand of new models and continuous marketing support where most brands extended their summer promotions, according to a statement. Passenger-car sales reached 6,732 units, a growth of 41 percent year on year. The commercial-vehicle segment, on the other hand, sold 11,362 units, or a growth of 10.1 percent.

Toyota remained as the market leader, garnering a 44.4-percent share in the market. The local unit of Toyota announced on Thursday that it sold 8,102 units in April, up 27.9 percent. –Catherine N. Pillas, Businessmirror