Interview: Satoru Suzuki
What measures could be taken to boost automobile production in the Philippines?
SATORU SUZUKI: The Philippines cannot currently compete with other ASEAN members when it comes to local production costs. However, the potential for growth in the domestic market, combined with the positive economic performance of the economy, presents an opportunity for automobile companies to install production centres in the country. This is a strategy that goes beyond production competitiveness; it is a matter of being well positioned when expansion occurs. It is also a matter of volume, as a larger market requires increased production, which automatically reduces costs. Overall, the future outlook is bullish. The question, however, is how to accelerate this process.
The support of government is crucial for the automobile industry, since installing production bases in non-competitive conditions is difficult. There is therefore a need for subsidies and incentives to attract production to the Philippines until the volume of the market is large enough to manufacture vehicles at competitive costs. The Comprehensive Automotive Resurgence Strategy (CARS) is a good initiative, but it is not without its challenges. To receive the subsidy of $1000 per unit, 200,000 units of the same model must be produced within six years. This is difficult to accomplish under current conditions. Also, the programme demands the use of locally produced parts and components, but the domestic industry is not yet fully developed and competitive. We understand the budget limitations and the financial effort undertaken by the government with CARS, but the production cost of vehicles in the Philippines is nonetheless 10% higher than in other ASEAN countries at the moment.
How can the local supply chain be developed to mitigate import dependence?
SUZUKI: The use of locally manufactured components in the production chain of vehicles is key, which means that development of the local industry is a priority. Again, it is a matter of volume. Local producers need to increase their output in order to bring down prices, thereby reducing the production cost for those industries that integrate the products into their supply chain. A more affordable supply of components would in turn make the local production of vehicles more competitive. To boost the production of local suppliers, an alternative focus would be to target increased exports. Indeed, the Philippine Economic Zone Authority promotes regional industrial development through focusing on incentives for exporters and suppliers. It is unclear whether or not these incentives will remain once the Tax Reform for Attracting Better and High-Quality Opportunities bill is passed.
Where are the main business and investment opportunities within the transport industry?
SUZUKI: Public transport is one of the areas with the greatest scope for investment in the Philippines. It helps that the stakeholders in the industry – from government bodies to the riding public – acknowledge that improvements must be made as soon as possible. Limited infrastructure has constrained the development of public transport and traffic congestion is an issue. Therefore, we see heightened demand for alternative forms of transport. Additionally, there is growing awareness of the effect cars have on the environment. The introduction of more sophisticated vehicles for taxis and vans could make operations more efficient, resulting in both a positive outcome for the country and benefits for investors. The public acceptance of ride-sharing solutions is paving the way for automobile companies to provide more vehicles for this and to consider subscription or rental models. Energy efficient, environmentally friendly electric vehicles will also become the industry norm. Technological advancements are pushing the automobile industry forward and the opportunities are virtually limitless.
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