Will The Philippine Auto Industry Survive The ASEAN Integration?

Member states of the Association of Southeast Asian Nations (ASEAN) are getting ready for full economic integration by 2016. Our Philippine correspondent, HAROLD, ponders on how his country's auto industry will fare in the face of the inevitable.

The national economic managers of the 10 ASEAN countries - namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam - are telling the world that there will be one ASEAN economic ‘system’ and ‘currency’ by 2016. I personally doubt this. What I believe is there will one economic ASEAN market, where trade and tariff barriers between countries will be scrapped. With this development, the ‘automological’ question is: What will the ASEAN auto industry look like? And for us in this corruption-challenged and red tape-ridden country, we ask: Will the Philippine auto industry survive the ASEAN market integration challenge?

The pessimists say: How can the Philippines with a production of only 43,233 vehicles in the period of January until end July 2014 compete with the ASEAN giant, Thailand, which has already produced 1.542 million vehicles during the same period; and Indonesia with 692,666; and Malaysia with 348,303? Even Vietnam has a higher production count of 48,092. Unless, we rationalise our convoluted tariff and customs system, ensure a labour strike-free auto industry, reduce power rates, increase fiscal incentives for foreign investments in auto manufacturing sector, eradicate red tape in the bureaucracy, allow a functioning judicial system and stabilise peace and order, we will forever be the last in the list of investment destinations for investors in the auto industry. In the 60’s, Ford, Toyota, Nissan, Mitsubishi and even Mercedes had large production facilities in the Philippines; we were then the 'ASEAN auto giant', but they all left, leaving behind bits of the facilities. Will we ever get to that level again?

The optimists (and I am one of them) say: Yes, Philippines can survive and even take the leadership role in the ASEAN auto industry. Fundamentally, vehicle production alone is not the key to leadership in the industry; I believe the country’s auto market share and a strategic auto industry road map with strong national economic fundamentals are equally important considerations for leadership. Here are the key positive indications that Philippines can take the lead again:- 

HIGHEST GROWTH RATE OF VEHICLE SALES and SECOND IN VEHICLE PRODUCTION IN ASEAN

Vehicle sales for the first seven months of 2014, tabulated by the ASEAN Automotive Federation, revealed that Philippines is the fastest growing automobile and motorcycle market in ASEAN with 26% growth rate compared to the same period last year, edging out Vietnam, Singapore, Malaysia and Thailand. In terms of growth rate in vehicle production, the Philippines with 23.1% ranked second to Vietnam. If we keep growing and outpacing our neighbours, we will eventually land on the top of the list one day. 

MOTORISATION OF THE COUNTRY AND INCREASING PURCHASING POWER

Clearly the rapid motorisation of the country, especially outside Metro Manila, requires more vehicles. The target is 500,000 auto sales by 2020; that is more than double the projected 2014 sales of 230,000. And, Filipinos can afford this given the continuing increase in our per capita income, now at US$3,300, which is comparable to most of our ASEAN neighbours. This is due in part to the continued GDP and GNP growth rates of 6 to 7% for the last 10 years (I can just imagine how high the growth rates would be if corruption, red tape and selfish political patronage were taken out of the equation. We could have edged China out at least in the growth rate race, and then out of Spratly).

LOCAL TOP EXECUTIVES OF THE PHILIPPINE AUTO INDUSTRY ALL DECLARE GLOWING PROJECTIONS

During the recently concluded 5th Philippine International Motor Show, organised by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI), top honchos of various auto manufacturers delivered speeches ‘prophesying’ the return of the glorious days of the Philippine auto industry. Newly appointed Nissan Philippines President and Managing Director, Antonio Zara, said, “The Philippines is 40% more in population compared to Thailand and our auto industry is only less than a quarter of Thailand; there is so much room for growth. And, the growth will come outside of Metro Manila….We at Nissan will definitely capitalise on the expected growth of the auto industry.”

Vince Socco, Toyota Motor Asia Pacific General Manager, said, "The Philippines is expected to be our third largest market in Asia, following Thailand and Indonesia.”

Lito German, BMW Motorrad Regional Marketing Director said, “The future prospects for the Philippine automotive industry are extremely bright.”

Dante Santos, President of Truck Manufacturers Association of the Philippines, said, “The auto production facilities already built in the country have the capacities to produce far higher units.”

And here is the real good news - CAMPI President, Rommel Gutierrez, reported that the country’s auto industry generated more than ₱120 billion (US$2.8 billion) in investments this year, generating over 500,000 jobs for Filipinos. The industry contributed ₱30 billion in duties and taxes so far this year and reported total exports of about US$3.4 billion in 2013.

THE OPTIMIST IN ME SAYS THAT WE CAN TAKE ON THE ASEAN AUTO MARKET INTEGRATION CHALLENGE!