Cars program headed for epic fail?

The Philippine government’s Comprehensive Automotive Resurgence Strategy (CARS) program is going through some rough roads, and if no concerted effort is conjured with its two participating vehicle companies, may well end up an epic fail.

Under CARS, which was hatched by the Board of Investments in 2015, participating car companies would be given a set of incentives for their fixed investments in a new model, as well as for the number of units produced.

Only two companies, both Japanese, enrolled in the program. Not incidentally, both dominated the domestic vehicle sales market, with their combined market shares accounting for almost two-thirds of the total industry’s sales at that time.

Even then, CARS seemed a risky proposition that required more guts and forward-looking optimism for any interested participant. In fact, while CARS had room for three automakers, no other vehicle manufacturer stepped in to fill the third slot.

Toyota Motor Philippines enrolled a new Vios, a sedan that was already being manufactured in its Sta. Rosa plant, and which was popular among young professionals looking at buying their first car. Mitsubishi Motors Philippines Corp., on the other hand, chose the Mirage/Mirage G4, targeting those who wanted an affordably priced but efficient vehicle.

Noteworthy to mention at that time was a surging buying power of more Filipinos buoyed by a continuous rise in monetary remittances by working Filipinos abroad plus the consistently high-performing economic growth of the country even in the midst of global uncertainties.

Domestic vehicle sales were also steadily climbing, and more automotive retailers were taking advantage of this by offering new models. There was also excited talk about the Philippines attaining a higher motorization rate with per capita income of the average Filipino going beyond $3,000.

Derailed

Then, TRAIN hit. The government’s first installment of its planned tax reform program rammed into the CARS program, derailing it with such a force that left the local automotive industry unbelieving at how fast their sales volumes dropped.

The state coffers may have achieved a bonanza in tax collections from the Tax Reform for Acceleration and Inclusion (TRAIN) Act, but it certainly did not accelerate the growth of the local automotive industry as sales slumped by 16 percent during the first year of the new vehicle tax regime.

Neither was TRAIN supportive of its avowed inclusion goal. Despite lower personal income taxes for salaried low-income workers, the expected savings bonus did not translate in new vehicle sales.

For the CARS program participants, the even larger 21 percent drop in passenger car sales (of which Vios and Mirage are a part of) meant a high possibility that their target sales in 2018 would not be met, and that they would have to rely on higher sales in the coming years to meet the committed 200,000 produced units.

Last year, Toyota rolled out only 14,682 units from its Sta. Rosa plant of the new Vios, which was about three quarters only of its target production. This year, ahead of yearend totals, Toyota is already warning that it will not be able to similarly meet its self-imposed quota.

Mitsubishi is roughly in the same boat. Already, the Japanese automaker is talking about reducing its work complement at its Laguna plant because of low domestic sales and the botched plan to export the Mirage to other Asian countries.

Worldwide, sales of the Mirage have not been going well, forcing the mother company to rethink its global manufacturing and sales strategy. A reveal of a new Mirage design has recently been leaked to the press, but until this translates to sales, nothing definitive can be expected.

Bright ideas needed

The Department of Trade and Industry (DTI), which wields an oversight function on the CARS program, has reportedly been discussing with Indonesia on the possibility of exporting the Philippine-made Vios and Mirage, as well as automotive parts, to offset a trade imbalance.

How this will pan out would require diligent negotiations that would plumb the sensitivities of relationships among ASEAN members who currently are working on an economic community model where free trade is the underlying objective.

Of course, a lot will depend on the plans and decisions of the global and regional headquarters of both Toyota and Mitsubishi. In the case of Toyota Philippines, for example, expectations of higher domestic sales of the new Vios in the next years may compensate for the first two years’ lackluster sales.

It would be a dicey situation for Mitsubishi in the Philippines, on the other hand, since exports are an important element in determining its ability to recoup the promised incentives under the CARS program. Being a far second in auto sales in the Philippines compared to Toyota, domestic sales of the Mirage/Mirage G4 clearly will not save Mitsubishi, even if the market recovers.

But Toyota and Mitsubishi are both multinational companies adept at shifting their grounds in order to maximize their profit-taking, and while things may not always go the way they originally intended, they for sure have Plan B, Plan C, and so forth.

For the Philippines, though, whose aspiration on the CARS program has, among other things, been to “revitalize the Philippine automotive industry and develop the country as a regional automotive manufacturing hub,” expectations may have to be abandoned or scaled down.

With Thailand, Indonesia and India as powerhouses in the global automotive industry, the Philippines’ chance to succeed in this highly competitive and fast changing environment may be another frustrating and losing ride.

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