Auto Parts
The vision of the auto parts industry is to strengthen the position of the Philippines as a significant automotive player in the medium-term and become a regional hub for vehicles and parts in Asia supported by a strong domestic supplier base.
The industry's objectives are: (1) to develop an internationally competitive and viable automotive parts industry, in terms of product range, price, quality, and on-time delivery; (2) to enhance value added and local capabilities in the automotive parts industry through improvement of processes, technology and human capital; and (3) to promote export-oriented parts and components manufacturers.
The industry targets are:
· CKD local content: 46% in 2013 to 68% in 2019-2020 (based on CKD production of 170,000 units in 2014-2015 to 330,000 in 2019-2020)
· Domestic OEM sales of P43 billion in 2014
· Domestic aftermarket sales of P183 billion in 2014
· Export sales of US$6 billion of international quality parts in 2015
· Employment of 150,000 (parts and assembly) and 50,000 in allied industries
· Taxes and duties of P50 billion
01
About Auto Parts
As a product, automotive is complex with large number of parts and components (textiles, glass, plastics, electronics, rubber, steel, and other metals) involving different production processes. The promotion of the automotive industry can lead to an expansion of many complementary investments by automotive parts firms, particularly because the automotive industry is a highly global industry, technology-driven and competition is intense among its players.
Currently, the Philippine domestic auto parts industry is composed of 256 companies producing around 330 different parts and components. With 4 Japanese automakers operating in the country, the industry represents some growing agglomeration economies in the Laguna and Cavite area.
The Philippine auto parts sector has continued to post respectable growth and contribute significantly to manufacturing value added (3%) and employment generation (5%). In 2009, it employed a total of 50,858 workers, generated value added of P28 billion and investment amounting to P5 billion. In 2010, auto parts exports reached US$3.3 billion which represented almost 7% of total Philippine exports and an export growth of 27%.
The auto parts industry has also remained a net exporter with balance of trade surpluses of US$3 billion in 2006 and US$2.7 billion in 2010. The Philippines has comparative advantage in a number of products like ignition/other wiring sets for vehicles; radio receivers, external power; lead-acid electric accumulators; brake system parts; transmissions for motor vehicles; pneumatic tyres for motor cars and other parts and components.
The auto parts industry is facing competitiveness issues due to the absence of economies of scale and a weak supply base. These are the fundamental issues that must be addressed in order to strengthen the industry and integrate it with regional production networks of global automakers. To help firms achieve this, there is a need for strategic industrial upgrading policy and carefully designed temporary subsidies that would target improvement of firm competitiveness. Political will is needed to address the illegal entry of used vehicles.
For domestic-oriented small and medium sized firms, the challenge is improving their competitiveness to enable them to compete in a more liberalized market. For export-oriented ones, it is important to identify ways and measures on how to maintain their competitiveness and take advantage of future opportunities. In both types of firms, expanding existing linkages and developing new ones would be crucial for the industry’s growth and development.
Amidst these challenges, there are market opportunities that globalization brings and which the industry can take advantage of. Forecasts show that Asia will be the most dynamic market in the world, especially with the steady growth of China, India, and the Southeast Asian countries. The creation of the ASEAN Economic Community (AEC) in 2015 along with other ASEAN+1 Free Trade Agreements (FTAs) offer increased trade and investment opportunities, as well as cooperative arrangements through joint ventures or mergers.There are also strong growth potentials in specializing in certain core processes and alternative fuel and E-vehicles and parts given growing environmental and safety concerns.
Within the context of these opportunities and challenges, the Philippine auto parts and components industry is envisioned to become a significant player in the medium-term and become a regional hub for vehicles and parts in Asia supported by a strong domestic supplier base. In line with the strengths and weaknesses of the industry, three major strategies are proposed to be implemented: (i) enhancement of the competitiveness of Filipino parts and components firms; (ii) creation of an incentive program to support the adjustment of the parts and components sector as the automotive industry is transformed from CKD assembly to full manufacturing; and (iii) creation of a more predictable environment for business operations.
Through the effective implementation of these policy measures, the auto parts industry can realize its potential of being one the key drivers of manufacturing growth by 2020, producing not only for the domestic market but also for the regional and world markets.
02
Facts and Figures
Exports and Imports of Automotive Parts, 2006-2013 (in million US$)
| Year | Exports | % Change | % of Total Exports | Imports | % Change | Exports-Imports |
|---|---|---|---|---|---|---|
| 2006 | 2,439 | 5.14 | 527 | 1,912 | ||
| 2007 | 2,981 | 22.22 | 5.91 | 442 | -16.25 | 2,540 |
| 2008 | 3,502 | 17.5 | 7.14 | 462 | 4.66 | 3,041 |
| 2009 | 2,605 | -25.63 | 6.78 | 429 | -7.18 | 2,176 |
| 2010 | 3,319 | 27.43 | 6.45 | 578 | 34.83 | 2,741 |
| 2011 | 3,751 | 13.02 | 7.81 | 690 | 19.32 | 3,062 |
| 2012 | 3,506 | -6.53 | 6.73 | 702 | 1.74 | 2,805 |
| 2013 | 3,675 | 4.82 | 6.81 | 728 | 3.81 | 2,947 |
| Average for 2006-2010 | 10.38 | 6.28 | 4.01 | |||
| Average for 2010-2013 | 9.68 | 6.95 | 8.29 | |||
| Average for 2006-2013 | 7.55 | 6.80 | 14.93 |
03
Policies
IPP 2014-2016
The manufacture of motor vehicle (excluding motorcycles, e-bikes and golfcarts) and motor vehicle parts and components is among the preferred activities listed in the IPP.
This covers the assembly of motor vehicles, manufacture of parts and components, research & development, research/testing laboratories, and technical vocational education and training institutions.
For the manufacture of motor vehicles (excluding motorcycles, e-bikes and golf carts), including the manufacture of parts and components, any of the following may qualify as new:
- Projects that will involve the establishment of a factory complete with production machinery/equipment and facilities.
- Projects of an existing motor vehicle manufacturer/assembler of passenger car/commercial vehicle that involves the production of a new model or a full model change (FMC) provided there is new investment of at least Php 200 million.
Any of the following may qualify for pioneer status:
- Projects on the manufacture/assembly of alternative fuel vehicle and electric vehicles. Alternative fuel vehicles include hybrid vehicles, and flexible-fuel vehicles.
- Manufacture/assembly of brand new three or four-wheel Philippine utility vehicles for cargos and/or passengers.
The project’s ITH Rate of Exemption shall be proportionate to the Logistics Efficiency Index (LEI).
The manufacture of motor vehicle parts and components include:
- Body panel stamping
- Engines, transmissions, and transaxle
- Large injection moulded parts
- Bumpers; instrument panel; door trims; center console; grill; wheel house finisher; lamps; shock absorber; wiper motor/blade; engine mounts; electric power steering; combination meter; instrument cluster; chassis & sub-frame; interior finishing; switches; seat mechanism; retractable seat belts; window regulator; constant velocity joints/transmission; aluminium radiators; plastic fuel tanks; fuel pumps; brake system and components; evaporators and condensers; relays; flame laminated automotive fabric; door & rear view mirrors; automotive glass; engine parts & assembly; and transmission parts & assembly
- Controller assembly, motor, and battery (other than lead acid) for electric vehicle
Original Equipment Manufacturer (OEM) parts and components may qualify for pioneer status.
04
Programs
Comprehensive Automotive Resurgence Strategy (EO 182)
The Comprehensive Automotive Resurgence Strategy (CARS) Program is being implemented in order to attract new investments, stimulate demand and effectively implement industry regulations that will revitalize the Philippine automotive industry, and develop the country as a regional automotive manufacturing hub.
The thrust of the CARS Program is to provide time-bound, and output or performance-based fiscal support to attract strategic investments in the manufacturing of motor vehicles and parts thereof. Other non-fiscal measures already provided by existing laws, rules and regulations, shall continue to be systematically implemented by the relevant government agencies.
CARS is intended to augment and enhance the policy directions of existing motor vehicle development programs towards ensuring a resurgent automotive industry that supports innovation, technology transfer, environmental protection, and SME development; enable the country’s automotive industry to seize market opportunities opened by the ASEAN Economic Community and deepen its participation in the regional supply chain; and boost the manufacturing capability of the overall industrial sector, spur growth of SMEs and create more jobs in the country.
The CARS Program is limited to the manufacture of three (3) models of four-wheeled motor vehicles, covering the following activities:
- Production of the enrolled Models;
- Manufacture of Body Shell Assembly and Large Plastic Assemblies of the Model;
- Manufacture of Common Parts and Strategic Parts not currently produced in the country at Original Equipment Manufacturer (OEM) standards of the Model/s; and
- Shared Testing Facility for vehicles and/or parts.
Registered participants of the Program may be entitled to two (2) kinds of fiscal support during the enrolled Model Life, up to a maximum of six (6) years, namely: (1) Fixed Investment Support (FIS); and (2) Production Volume Incentive (PVI), following prescribed qualifications.
Comprehensive Motor Vehicle Development Program (EO 877-A)
The Comprehensive MVDP provides for the following:
- Creates a Motor Vehicle Industry Development Council to oversee, coordinate and align all government policies and programs, rules and regulations, related to the motor vehicle industry.
- Increases the level of progress achieved by EO 156 through the enhancement of the existing motor vehicle industry policy framework
- Strengthens the used vehicle importation prohibition under EO 156
- Provides for the restructuring of (1) tariff rates to be comparable to neighboring countries with similar motor vehicle development programs; and (2) excise taxation system for motor vehicles to be fair, transparent, and stable
- Provides for granting of export incentives and support measures to encourage greater participation, diversification of exports, and capacity utilization of parts manufacturing and auto-support industries
Restructured Motor Vehicle Development Program (EO 156)
The restructuring of the Motor Vehicle Development Program provides for the following:
- Ban the importation of all types of used motor vehicles and parts and components, except those that may be allowed under certain conditions
- Restructure the Most Favored Nation (MFN) tariff rates for motor vehicles and their raw materials and parts and components at such rates that will encourage the development of the industry
- Restructure the current excise tax system for motor vehicles with the end view of creating a simple, fair and stable tax structure
- Continue the application of AICO scheme as may be adopted by ASEAN consisted with the implementation of the ASEAN-CEPT
- Grant incentives to assemblers and parts and components makers for the export of CBUs and parts and components
Industry Development Program
Representatives of the automotive parts industry participate in the automotive industry Technical Working Group (TWG), which conducts meetings to discuss and address industry concerns and issues. These include the implementation of non-fiscal measures, especially on the importation of used motor vehicles and the need for a more productive fiscal package that can help local manufacturers to become more competitive in the ASEAN Economic Community.
Specifically, the TWG focuses on the following concerns:
- Strict implementation of the Motor Vehicle Inspection Scheme (MVIS)
- Enforcement of anti-counterfeit measures for vehicle parts and components
- Implementation of full inter-connectivity between BOI, BOC, BIR and LTO
- Abolition of the Certificate of Payment (CP) for CKDs
- End-of-Life program for vehicles
- Re-fleeting program to replace vehicles that are more than 10 years old
05
Champions
Board of Investments (BOI)
Industry and Investments Building,
385 Senator Gil Puyat Ave.,
Makati City Philippines
Tel. No.: (632) 896-9239
Email: MCHDichosa@boi.gov.ph
Philippine Parts Makers Association
3/F, Yazaki-Torres Building, 1043 Zobel Roxas cor. Bautista Sts., Singalong, Manila
Tel: 809-1469/0917-528-1946
Email: ppma2015@yahoo.com
