By Catherine N. Pillas
Local parts makers are re-doubling efforts to ramp up production capacity in response to the government’s Comprehensive Automotive Resurgence Strategy (CARS) Program, which is expected to boost sales to P240 billion by 2018.
The outlook is positive for the Philippine Parts Maker Association (PPMA) as majority of its members, being small and medium businesses, are beginning to see the fruits of the CARS Program.
PPMA President Ferdinand Raquelsantos said, with car assemblers and parts makers now in the development stage of meeting the program’s requirements, a domestic sales figure of P240 billion is achievable when actual production starts in 2018.
“Roughly, after 2018, we should be able to hit P240 billion because once this program starts, there will be a lot of additional parts that we don’t normally produce here,” Raquelsantos said.
Parts makers are seen as the real winners in the government’s CARS Program as they stand to benefit from improved production and technology improvement.
A salient goal of the CARS is to encourage local manufacturing by offering attractive fiscal and nonfiscal perks to car assemblers who will, in turn, increase the business of their parts makers and suppliers.
To boost manufacturing in the country, the Department of Trade and Industry’s CARS Program requires an increase in local content to around 60 percent of the parts of every locally assembled vehicle.
Aside from boosting local content sourcing, the CARS Program also requires participating car assemblers to produce at least 200,000 units over the course of the program to benefit from the incentives.
With this volume requirement, parts makers can now boost their capacity, which, thus far, have been underutilized. Parts makers also see employment to increase by 60 percent to 70 percent in their sector.
Another advantage of the program, said Raquelsantos, is the level of technology that would be transferred to local parts makers in making the “strategic parts” of the vehicle.
The CARS Program defines strategic parts as those automotive vehicle parts specific to an enrolled model at original equipment-manufacturer standards and which are not currently being produced in the Philippines.
Such is the optimism of PPMA that it expects to see this year not less than 31 joint ventures or technical agreements between its members and foreign suppliers.
Technical agreements would allow foreign players to make use of local parts makers’ existing equipment to meet the local content requirement of the program, at determined quality levels.
Joint ventures, on the other hand, can also be closed between local parts makers and foreign parties when the equipment for a particular vehicle part is not available and will entail an investment to be made locally.
Raquelsantos said that small and medium parts makers will likely enter the production network in supplying the smaller components of larger parts, such as the large body shell and plastic assemblies.
“There are ongoing talks already on the development of these big body parts, shell and plastic, but we are actually more into the small parts or what they call strategic parts and common parts. The car assemblers themselves can make the large components,” Raquelsantos explained.
“We see a lot of items that are going to be produced by car assemblers themselves because some of these big parts require huge machines that we don’t have locally, so some have to be done by the local car assemblers themselves…and with that, we are hoping also that the small parts that come into these big parts will trickle down to the smaller parts makers,” he added.
Examples of parts that can be produced are hoods, instrumentation panels and subparts of the vehicle’s chassis.
According to Assistant Secretary for Industry Development Rafaelita Aldaba, the Philippine Statistics Authority has estimated the value of output of production of motor-vehicle parts and accessories at P133.5 billion in 2013.
This is the base year for the estimated doubling to P240 billion in domestic sales of auto parts by 2018. The auto industry contributes 6 percent to total manufacturing employment, and motor-vehicle parts exports, valued at P4.3 billion in 2014, is 7 percent of the country’s total exports.
The CARS Program is a government stimulus initiative aimed at reviving the country’s manufacturing sector by specifically targeting the automotive industry given its strong linkages to other manufacturing sectors and its so-called multiplier effect on these sectors.
The CARS Program provides for a government support fund of P27 billion or a budget of P9 billion for each enrolled vehicle model, for which the program will open three slots. CARS is a core component of the government’s Manufacturing Resurgence Program.