Aftershocks in automotive industry

It was just a question of when. Even as the current Ford Philippines president Randy Krieger took over local operations more than a year ago, the writing was already on the wall.

Firstly, local sales alone could not sustain the immense capital needed to have a vehicle manufacturing plant that was economical in size. It was simply not going to be a profitable proposition.

Secondly, the Philippine government has not been able to provide a good package of incentives vis-à-vis what its competitors in the region have offered. Especially since the archipelago is just too inconveniently far from growing and mature vehicle markets like China, Thailand, Malaysia, Hong Kong, Japan and Singapore.

Thirdly, in the overall global scenario, the Philippines is just too late. In fact, as early as two years ago, the threat of vehicle overproduction has been the issue that was being talked about by manufacturers. And this has been compounded by a slowing demand in the US and Europe.

This list actually could grow. One thing for sure though, a vehicle manufacturing plant in the Philippines – no matter what its size – was just not going to earn enough. Not 15 years ago when the region was hit by the Asian crisis; definitely not five years ago when the global financial crisis crushed the whole world economy.

Perhaps in the far future, our government could dream of having one or more vehicle manufacturing plants – when the domestic economy would really be revved by genuine growth, and not just from the sweat of overseas migrant workers and salaries of those working in the local business process outsourcing sector.

Survival

Ford, like many of the big vehicle manufacturing companies, is going through a ruthless transformation to keep alive. For those more agile, the restructuring has meant shuttering small plants and even downsizing those that were too big.

Unlike five years ago when some governments had come up with rescue packages, the continued worsening of many economies in recent years has left motor vehicle companies with the realization that they have no one to rely on except themselves.

Recent data has shown that car manufacturing in the mass market category is suffering from as much as 20-percent overcapacity. For those already reeling from financial problems, the unused manufacturing capacity spells unnecessary costs that could quickly become their death kiss.

To make matters even worse, the Chinese, Koreans and Indians are going full-blast with their own manufacturing plants. These are meant to keep their respective local markets well-supplied with cheaper versions of the former giant auto manufacturers.

There are also smaller nagging threats from technological challenges, such as the electric car or fuel cells, or more radical concepts like electromobility that could turn upside down the way humans will embrace the way they move from one destination to another – and consequently, question the very structure of the current automotive industry.

Local scene

What does this all mean to the Philippines and Filipinos?

An oversupply in the world market almost immediately translates to better prices. With our current tax structure, owning a car here is the envy of most of our Asian neighbors.

Unit prices of most vehicles have also been relatively stable with inflation levels fairly managed despite the astronomical rise in crude oil cost. Consider that two decades ago, a sub-compact cost P350,000; these days, one may still buy the equivalent class but with better features at under P500,000.

There are also more brands to choose from. The Kias and Hyundais are definitely making a bid for the traditional brand values that most consumers had formerly associated with Fords, Toyotas, Hondas and Mitsubishis. And don’t forget the threat from China’s Geely and Chery.

Focusing on content

So should our government kiss goodbye its Motor Vehicle Development Program that was originally intended in 2002 and restructured in 2010 to encourage the construction of local vehicle manufacturing and assembly plants?

Yes, it seems time to move on. Perhaps a better alternative would be to strengthen local manufacture of vehicle parts, something that seems to be surviving given the recent trends by many automotive manufacturers that have shown profits in recent quarters.

Filipinos are still considered one of the best skilled and disciplined peoples in this field, and this is acknowledged by Japan especially in the area of semi-conductors.

Or encourage local foundry to build chassis for home-designed electric vehicles, even agricultural tractors or rural transportation alternatives. Better still, why not focus on motorcycle parts manufacture, and eventually producing our own local brand of motorcycles.

Alternatively, our government can just continue capitalizing on its greatest asset – human resource. Let’s continue training our countrymen to be the best technicians, engineers, researchers that will be able to shine in global industries like automotive manufacturing.

Heck, it’s nice to dream. But nothing beats getting things done. –Rey Gamboa (The Philippine Star)