Ford Philippines: Business as usual

First the bad news: By December 31, 2012, the production plant of the Ford Group Philippines in Sta. Rosa, Laguna will officially end its production of Ford Everest vehicles and will subsequently be decommissioned. As a result of this, 250 employees will lose their jobs after receiving their benefits and their appropriate separation packages.

Of the 250 people, anywhere from 20 to 30 will have a chance to relocate and possibly join production teams in the three major production centers of Ford Motors, namely Thailand, India, and China.

The good news according to Ford senior executives is that their national sales force and all related support teams will carry on as usual and will continue to pursue Ford’s plans to expand sales, introduce a total of eight all-new models by 2015, doubling its nationwide network of dealerships in the same time frame and provide service and support for all Ford vehicle owners.

In other words, it is effectively “Business As Usual.” In spite of the factory closure at the end of the year, Ford’s long term plans in the Philippines will continue and there is no cause for concern regarding parts, service and maintenance requirements because all of these have been an independent business platform apart from the Sta. Rosa factory. In fact the Sta. Rosa plant only supplies 10 percent of the total units annually sold in the Philippines, with the rest of production earmarked for export to ASEAN.

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I learned about all this and more last Wednesday when Ford invited around 20 selected journalists for lunch at the Old Manila restaurant of the Manila Peninsula Hotel. I presumed that the lunch would be related to the launch of Ford’s all new “Focus” sedan, since half of the guests were actually heading out to Thailand next week for a hands-on test drive.

But when Ford executives dropped the bomb, we were all stunned. Considering all that went into putting up the $270 million plant in 1999 and its cumulative production and export of 80,000 units valued at $1 billion export value, how was it possible to be in this situation? Just when things “seemed” to be going good, why pull the plug?

Immediately journalists suspected that the matter might have to do with lack of government support, but Ford Executives were quick to categorically state that they had excellent relations with government, and that the decision to shut down the factory on year’s end was an unavoidable business decision within Ford. Visibly agonized by the decision, Ford Group Philippines president Randy Krieger emphasized that “Try as we did, we were not able to find a viable solution to the problem.”

The problem it seems was all about “efficiency and economies of scale.” Peter Fleet, Ford Asean president, flew in from Bangkok to personally make the announcement and explained that for the longest time, Ford had hoped that as the local economy and business environment improved, so would the availability and size of local supply base as well as consumer demand. But after 13 years, it seems Ford’s optimism with the Philippines was a bit much.

Ford Philippines has been largely dependent on parts suppliers from India, China, Thailand and Korea, which has been an added cost to the production of Ford vehicles made in the Philippines. In addition to this, the importation and processing for release of said parts also added to the inefficiency and relative length of production. Once the vehicles were made, exporting them by sea to other ASEAN markets was an added cost, unlike those manufactured and sold to the interconnected ASEAN countries. In addition, most of the models put out by the factory were “older” lines. As a whole, the factory was producing a limited line and by operating at 25 percent capacity, made the whole process impractical.

In the absence of any compensating mechanism or policy from the Philippine government, local production and export was simply not competitive and highly inefficient. On the other hand, parts suppliers have not found the Philippines as an attractive investment opportunity, considering the limited prospects versus the high investment cost to set up factories.

Aside from the relatively higher cost of Philippine made units, the Philippine market has taken an unexpected twist. When Ford set-up its plant in 1999, the presumption was that Filipinos would be buying more and more Ford vehicles especially those made in the Philippines. Unfortunately, automotive brands who had no plants or such investments in the country swooped in and grabbed what should have been the rewards for companies such as Ford that had invested in factories in the Philippines.

In light of this unfortunate turn of events, we should now concern ourselves with the remaining factories of companies such as Honda, Toyota, etc. Ford may have excellent relations with the Philippine government, but do the policies and structure currently in place create a level playing field, particularly for companies who go as far as building production plants? What equalizer is in place against “distributor brands” that simply import and sell and end up taking the lion’s share?

It has been my unpleasant experience to see the closure of factories such as the goodyear tire plant, the Ford Sta. Rosa plant as well as the drastic reduction of operations of several long-haul airlines that have decided to sidestep the Philippines as a final destination. How many more closures will we see before government realize that getting investors is good, but making them stay is even better!

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