ASEAN will likely become a key automotive market and production hub by 2020. The largest production bases, Thailand and Indonesia, are already leading the “internationalization” or “globalization” of the ASEAN automotive industry. The remaining production bases, including the Philippines, are mainly serving their respective local markets.
With vehicle output of approximately 4 million units, ASEAN accounted for four percent (4%) of total global vehicle production in 2015. Thailand and Indonesia accountfor seventy percent (70%) of total ASEAN production volume and are already designated by the major auto players as their export base in the region. In terms of market, ASEAN accounted for 4% of the global auto market at 3.1 million unit sales in 2015. This is slightly lower than 2014 performance but recovery is expected beginning 2016.
Although small from a regional perspective, with ten percent (10%) share to total ASEAN sales in 2015, the outlook for the Philippine Automotive Industry is very promising. The automotive market has been experiencing unprecedented and phenomenal growth in the last five (5) years. In 2013, the industry breached the 200,000 units level, an indication that motorization has indeed started in the Philippines.
The automotive market is probably growing faster than we expected. Last year, the Automotive Industry set new record sales at 321,000 units sales, nineteen percent (19%)
higher compared to 2014. The Automotive Industry is projected to reach 350,000 units
sales this year. Looking further ahead, it is projected that the Philippine automotive market
will reach 500,000 units in 2020 at the minimum.
The current business environment of the Philippines is enabling; and our macroeconomic fundamentals remain strong. The steady rise in income per capita and population growth will drive the growth of the Philippine auto market. Having the second largest population is considered an advantage for the Philippines since it can lead to a large domestic consumer base. Compared to other ASEAN countries, the Philippines is very far from reaching market saturation. Low car ownership ratio indicates high potential for the Philippine auto market.
Challenges for the Philippine Auto Industry
Given this backdrop, ASEAN integration will definitely have an impact on the Philippine
Automotive Industry. Integration could result to productivity gains but it will further intensify
competition, even within our own market. It is clear that the local automotive manufacturing
is at a crossroad. There is positive outlook of a 500,000 vehicle market by 2020 but this is
challenged by the small domestic market and weak supply base. These factors affect the
competitiveness of local auto manufacturing against other production bases. Independent
studies on the Philippine Auto Industry estimate the production cost gap between the
Philippines and the major production bases Thailand and Indonesia at approximately $2,000 per unit.
Our limited parts supply base remains a primary weakness. The Philippines has less than 300 parts suppliers while Thailand has over 1,800 suppliers and Indonesia has over 500 suppliers. With fewer parts manufacturers supplying a limited number of parts, vehicle manufacturers are compelled to import their production requirements. Logistics, packing, handling charges and other related costs raise production costs. The main challenge for the auto industry will be its desirability as a destination for auto manufacturing investments.
Increasing regionalization will continue to change the business environment and market dynamics for automotive. In addition to competitive cost and quality, the innovation capability of industry players will become an important factor that will drive the automotive business. There is a need to develop critical parts manufacturing capabilities and other factors to support manufacturing such as technical skills and the associated supply chains of the parts manufacturing subsector.
Local auto manufacturing as a source of growth
Recognizing the need for a firm CKD strategy that will give the Philippines a larger share of production in ASEAN, both in terms of vehicles and parts production, the Government issued Executive Oder No. 182 approving the Comprehensive Automotive Resurgence Strategy (CARS) Program on May 29, 2015. The program implements the fiscal component of the Auto Roadmap, which aims to improve the cost-competitiveness of local auto manufacturing operations.
Key strategies are focused on narrowing if not completely closing the cost gap between
the Philippines and other production bases, strengthening and expansion of the domestic
supplier base; and measures that will help increase the market base for locally-produced
Localization is at the core of the CARS Program. It is therefore expected that the development of local supplier capability will be accelerated. The higher production volume under the CARS program will also give scale to parts manufacturing as cost per unit will also be reduced due to volume effect. This increases the competitive position of local suppliers to penetrate the value chain of global OEMs. Since the CARS program aims to attract vehicle models that will be highly competitive, it is highly likely that these models have regional presence, which will offer
export opportunities for parts & components manufactured for the enrolled models.
In summary, the positive domestic outlook and the stable growth drivers point to the big
potential of the Philippines as an important market in ASEAN. Given the right policy
environment, expansion in production is really feasible. The industry believes that the CARS program will enable the Philippine auto industry to compete regionally.