RP auto industry faces ‘make-or-break’ stage with revised MVDP -Part I

The year 2009 proved to be a very challenging year for the automotive business as it took severe beating from the global financial meltdown.

The closures of manufacturing plants, financial bankruptcies and massive layoffs of workers of the world’s biggest autoplayers were clear signals of an industry in dire straits.

The local automotive industry, no matter how modest it is, was not spared. Automotive companies instituted mitigating measures to counter the impact of the crisis like retrenchment by offering attractive early retirement packages, shortened workweek and job rotations.

The crisis has made it even more pressing for the government and the industry to vigorously push for the completion of the review of the industry’s 7-year-old Motor Vehicle Development Program (MVDP) under Executive Order 156, which the Board of Investments (BoI) has declared a failure as industry sales continued to stay behind the 1996 peak of 162,000 unit level making the Philippines a laggard in ASEAN.

The BoI-approved policy framework of the proposed new MVDP seeks to craft strategies for the domestic auto industry to become globally competitive because the zero tariff in ASEAN would take effect this month while the ASEAN dialogue partners are also moving into the zero tariff regime.

To support this objective, the BoI came up with seven critical and revolutionary components under the MVDP framework hardcore assembly operations, exports program, parts and components development, review of the excise tax on vehicles, policy on importation of used vehicles, standards, and creation of an automotive “authority.”

Specific measures for each of the seven components have yet to be determined under the Implementing Rules and Regulations of the new MVDP.

FILIPINO CAR

One special feature in the new MVDP framework is the provision for the development of the so-called Philippine Winners or the “Philippine Brand Vehicles” (PBV) making it the biggest beneficiary of the MVDP framework.

PBVs would be granted full tax and fiscal incentives, exemption from excise tax payments, a special exports program and with assured mass market. In other words, the MVDP is gunning for localization of the auto industry.

The PBV would be the fifth category of the current three categories under the MVDP – passenger cars, commercial vehicles and motorcycles.

Overtime, however, the government through the BoI has undertaken revisions of the motor vehicle industry program to ensure sustainable business and to address needs of Filipinos for access to affordable vehicles.

The closest attempt at building a Filipino car was during the time of Trade and Industry Secretary Jose Concepcion Jr. and DTI Undersecretary and BoI managing head Tomas I. Alcantara.

Alcantara pushed for the implementation of the People’s Car category when the BoI amended the Japanese-controlled Progressive Car Manufacturing Program to become the MVDP by allowing new participants as long as they start in the production and marketing of People’s Car.

People’s Car participants were allowed to import their People Car entries as CBUs. They were required to market these models over a certain period of time at a price under control by the BoI before they could graduate into the assembly and distribution of higher-end models and even if they have graduated from the People’s Car program, they are still required to maintain their People’s Car models. They were also required to invest in the assembly of cars and parts manufacturing.

Notably, however, none of the existing auto program members participated in the People’s Car program.

Anyway, the People’s Car program was a first for the Philippine market and for the automotive industry to see an influx of imported small cars marketed as Peoples Car.

Indeed, the People’s Car program has opened the door to new players including the Koreans, Europeans and Americans. It also brought down prices of vehicles to as low as P320,000 per unit for a less than 1 liter engine car and widened the industry base.

But the People’s Car Program had long lost its relevance as its participants failed to sustain such operation.

Honda Cars Philippines, which entry to the Philippine market, was through the People’s Car Program said their entry model of a hatchback Honda Civic was heavily subsidized.

Honda, however, has pursued local assembly operations and is now producing and marketing higher-end models. But it has long abandoned its People’s Car model. Other People’s Car participants became pure traders.

Then there was the Asian Utility Vehicle category, whose attractiveness was eroded when it was subjected to excise tax payments.

The previous attempts at building the Filipino car had not taken into consideration the development the Philippine icon, the lowly jeepneys.

With the revival of the Filipino car program under the PBV, the Motor Vehicle Parts Manufacturers Association of the Philippines (MVPMAP) are overjoyed because its e-jeepney project is going to qualify under this new category. E-jeepneys are now plying in select cities and areas in the country.

The development of PBVs also means the development of the local auto parts industry.

“The PBV is the light at the end of the long, dark tunnel for the local automotive industry,” declared MVPMAP president Raffy Villareal.

“We have long advocated that given the opportunity and the resources, the Filipino engineer can build a truly Pinoy vehicle. This is also in line with our advocacy for the local car assemblers to locally assemble at least two vehicle brands,” Villareal said.

Villareal said the proposed PBV must be locally-designed, developed
and assembled vehicle for the mass market, low priced, with high local value added labor and materials and compliant to standards.

The PBV is just a segment of the MVDP and would have its own market. The major players are positioning themselves for the mainstream market.

According to the study Deloitte Economics (Australia), the Philippines could be the best bet as the second regional hub for the global auto players provided the right government incentives support and commitment of players to invest and expand operations to attain a global manufacturing scale of 500,000 units by 2020.–BERNIE CAHILES-MAGKILAT, Manila Bulletin

(To be continued)