The automotive manufacturing industry is
one of the largest backbone for economic growth across Asia. The rise of Japan paved
the way for motor companies such as Toyota, Nissan and Mitsubishi. This was followed by
South Korea’s rise which paved the way for companies like Hyundai and Kia. Then soon China
would follow with companies like BYD, Great Wall Motors and a long list of other names. India,
too, has its own company known as Tata Motors. Within Southeast Asia, we have seen the rise in
both foreign investments and local companies. In Vietnam, the company now has its own
electric vehicle brand known as VinFast. Malaysia has long had their own brand known
as Proton and Perodua. Whilst Indonesia and Thailand do not have a major car brand, they
are home to some of the biggest automotive manufacturing facilities. From Toyota Motors
to Ford Motors have invested billions of billions of dollars into these countries to
construct their own manufacturing facility. Out of all these, one country stood out; The Philippines. The archipelago country is
the sole country out of all these major Asian economies that still to this day not have a
car brand of its own, or even a major auto manufacturing facility. A lot of their cars are
mostly imported overseas, like from Thailand. The effects, of course, result in a poor trade
balance. In basic economics, international trade happens when a country exports and imports from
another country. The Philippines in this case, imports from say Thailand. Doing so, they would
pay them in a foreign currency, usually denoted in US dollars. When they do this, the US dollars that
they hold in their on foreign reserves account goes down. It can be bad when the Philippines
foreign reserves goes down. That is because it also has to pay for other things. Like they have
to pay their foreign debt obligations to say China and Japan. They also have to import food. This
is why the Philippines, and any other country, should always try to limit excess importation. But
the Philippines, due to unfortunate circumstances, has one of the world’s largest trade deficits.
In 2023, the Philippines incurred a trade deficit of over $52.4 billion US dollars. The Philippines
exported a mere 73 billion, but imported over 125 billion. The only reason why the Philippines
is not in a crisis is because of its service exports such as its business process outsourcing
industry (BPO) and overseas Filipino worker remittances (OFW). Had it not been for these,
the Philippines would be in a terrible shape. But then again, why has this been the case? Why does the Philippines not have
an auto manufacturing industry? Well, let’s first look at the local company
landscape first. The Philippines actually had one. It was known as Sarao Motors. Sarao Motors
was the famous Jeepney brand that manufactured and sold hundreds of thousands of Jeepneys across
the country. At its peak, Sarao Motors produced 8 to 12 units daily, with some reports claiming
up to 20 units and employing 400 workers. But what happened to the company? Well,
back in 1997, there was a big crisis. It was called the 1997 Asian Financial Crisis
which caused the peso to fall. This doubled the cost of imported secondhand parts from
Japan. This led to financial difficulties as Jeepneys became more expensive to operate and
repair due to the lack of standardized parts. Furthermore, the government decided to stop
issuing new franchises for jeepney drivers in the late 1990s which significantly reduced
demand for new jeepneys. By October of 2000, Sarao Motors halted production and laid off about 250 workers. Edgardo Sarao cited
high production costs, low sales, and rising wages as reasons for the closure in
an interview with the Philippine Daily Inquirer. Due to the strong demand for Jeepneys, they
continued the business. While operations were downsized, they were still producing
units, albeit at a slower pace. Today, Sarao Motors still operates with
about 50 employees. Moreover, in 2018, they introduced an electric
jeepney prototype, the GP Sarao. Besides Sarao Motors, the Philippines
also has a local company called Francisco Motors Corporation. They recently
offered to sell electric jeepneys, and were developing a car called the Harabas
and the Anfra. On top of these two, there is also the Almazora Motors Corporation,
a truck and bus body manufacturer. While there is evidence that the Philippines have
a local car brand. It is still nowhere near to what other countries have gotten. Even Vietnam’s
VinFast, its own local car brand, is now amongst the world’s most valuable car companies. As of the
time of writing, Vinfast is valued at 9.18 billion dollars, making it the 35th most valuable company
in the entire world, surpassing even Japan’s Mazda brand, and Sweden’s Volvo Cars. Local companies in
the Philippines are nowhere near a billion dollars in valuation, neither will it be possible in the
near future that a car company may become one. Before we answer why this is the case, let’s first
take a look at the foreign investment landscape. The Philippines is actually home to a few car
manufacturing facilities. The American automotive giant; Ford Motors, had a long history in the
country. They opened up local automotive assembly plants dating way back to 1968. Overtime, they
would shut their plants but eventually re-open them back again. In 2012, however, they
would totally shut down their local plant. Why they did this was because the Philippines'
Ford plant was small by global standards, with 250 employees producing 35,000 vehicles annually. Ford
typically operates at a scale of 300,000 units per plant, and their Plants in China, India, and
Thailand have this capacity, which isn't practical in the Philippines. From a business perspective,
expanding a larger facility was more practical than maintaining a smaller one. Additionally,
obtaining parts was easier near larger facilities. Thus, after a month they announced the closure
of their Santa Rosa Plant in the Philippines, Ford celebrated opening a new $450
million dollar facility in Rayong, Thailand, expected to produce
150,000 units annually. Then in 2020, Honda Motors would
follow. Honda Motors announced the closure of their assembly plant due to
low production volume. Their Santa Rosa plant produced 8,000 units annually with 380
workers. The plant's low production volume, compared to 250,000 in the
UK, made it unsustainable. In 2021, Nissan Motors too closed their plant.
The closure led to the end of its Almera model, which sold an average of 4,500 units annually.
The Almera, now not a locally assembled car, is imported from Japan and Thailand. The
shutdown caused the loss of 133 workers. Right now, there is only an ample number of auto
manufacturing facilities in the Philippines, mostly assembly plants. One of them
is the Mitsubishi Motors Philippines, which has a 23 hectare manufacturing hub in
Laguna, with capabilities to produce 50,000 units per year. The other is Toyota Motors
Philippines, which has a long history in the country. They have a big facility located
inside the 82-hectare Toyota Special Economic Zone and its existing manufacturing plant has
the capacity to produce over 55,000 units per year as of the end of 2021. While these two
still have a big presence in the country, they are nowhere near the size of Thailand
and Indonesia. Moreover, a lot of the plants, especially in Thailand are even for export
purposes. Meaning a number of cars manufactured in Thailand will be sold to other Asian
countries. In the Philippines, most of their cars are only for sale for local Filipino buyers.
This does not help the Philippines trade balance. So, why has the Philippines failed to have
its own auto manufacturing industry? Well, let’s take a look at a few government policies.
There’s one known as the comprehensive Automotive Resurgence Strategy (CARS) program introduced
in 2015. CARS sought to attract new investments, stimulate demand, and implement industry
regulations to position the Philippines as a regional automotive manufacturing hub.
Fiscal support for the program began in 2016, with a total budget of P27 billion pesos. But what happened to the program? Some,
today, praised the outcome. In 2022, the two companies participating in this Mitsubishi
Motors Philippines and Toyota Motor Philippines will produce 207,165 units combined. But was it
really praise worthy? Sure, the government said that this saved the country $1.01 billion
in forex and created nearly 110,000 jobs. But it's still not enough. If you were paying
attention, this program was introduced in 2015, but Nissan and Honda closed their plants in
2020 and 2021. This policy was not enough. But anyway, do let us know what
you think. Thanks for watching!