Local auto parts makers seek more incentives

Local auto parts manufacturers are asking government to extend more support and incentives to the industry to enable them to survive fierce competition from other ASEAN economies.

The Motor Vehicle Parts Manufacturers Association of the Philippines (MVPMAP) said the state should support not only the development of the domestic auto industry but also the local auto components industry.

While the auto parts makers said they are pinning their hopes on a Philippine utility vehicle (PhUV) program to increase sales volume, government support and incentives similar to those extended to their ASEAN counterparts should likewise be put in place.

The group cited the case of Thailand, now the biggest auto assembler and market in the ASEAN region and the second largest pick-up truck market after the US.

With its government’s backing, Thailand decided early on to focus on the pick-up truck as a niche market and succeeded in establishing itself as the pick-up truck capital of Asia, with these units making up 72 percent of total production.

It has an annual production volume in excess of 700,000 units and has hit the one-million mark last year, with about 38 percent exported.

Thailand is now considered as the "Detroit of Asia" as it serves as the regional production hub of several automotive companies.

The MVPMAP pointed out that the Thai government granted a wide array of incentives, including a government tax of only three percent.

To reduce selling price and spur sales, the government also reduced excise tax.

Thailand also developed an extensive support network of auto parts manufacturers so that parts need not be imported. Widespread credit availability also helped boost demand.

With over 700 OEM (original equipment manufacturers) auto parts suppliers and 1,000 in supporting industries that together employ more than 217,000 workers, Thailand enjoys the reputation for having a strong supply base.

Thailand also attracted high-level parts suppliers by offering "priority activity" status to investments in identified key components. This confers on the investor an eight-year tax holiday, duty-free machinery, visa and work permit support and land ownership rights.

Thailand also gave maximum incentives to activities, such as research and development, human resources development and design activities that support the auto sector.

To further cement its title as the "Detroit of Asia", the Thailand Automotive Institute embarked on a $218-million program to develop five key projects: HRD, auto experts dispatching program, establishment of R & D centers, auto parts testing centers and car-testing tracks, an information technology center and an auto export promotion center.

Moreso, to broaden its auto industry base beyond the pick-up truck, Thailand will soon implement a "Best Little Car" project.

In the case of Malaysia, the MVPMAP said it also has a vibrant auto industry that churns out 546,000 vehicles per year, the second biggest ASEAN car market next to Thailand.

This, the group said, is due largely to the support that the Malaysian government has given its National Car Program, with Proton and Perodua as its national cars, and its car parts suppliers all enjoy cuts in income and other taxes.

As a result, jobs are generated and Malaysian cars were able to break into the international car market.

Malaysia also supports its car parts makers by imposing higher taxes on importation of car parts and creating a mandatory standards for foreign products.

It has even gone to the extent of challenging the World Trade Organization (WTO) by recently imposing a series of non-tariff barriers (NTB) on car imports.

Although Malaysia did cut tariff for completely built-up (CBU) vehicles from 20 percent to five percent, it imposed that for an importer to avail of this, it has to be owned 70 percent by either the government or Bumiputera. CBU imports are also capped at only 10 percent of local production volumes.

A third NTB is the imposition of customs valuation on CBU imports, instead of the GATT-approved valuation methodology.

The MVPMAP said Indonesia is turning out as another ASEAN heavyweight since it decided to focus on the development of the auto components industry and the Asian utility vehicle (AUV) as its niche market.

Today, with government support, it is developing a mini-sedan industry with engine displacement of 1,500 cc as a way of entering the international market for auto parts.

The result of all these: a production volume of over 500,000 units a year.

Indonesia, the world’s fourth most populated country, is one of the hottest car markets in the world alongside China and India. Driving sales in this country are cheap financing and plenty of new, low-priced models such as the popular Toyota Kijang AUV.

Even Vietnam, the new kid on the block, has taken strong and decisive actions to protect its growing auto industry, MVPMAP pointed out.

In April 2006, Vietnam allowed the importation of used vehicles to help spur its growing economy. But local auto assemblers complained, so the government immediately imposed higher taxes for the importation of used vehicles.

The import tax was in the range of from $3,000 to $15,000 per vehicle. As a result, the country’s annual production volume has steadily increased to its current level of about 45,000 units.