Auto and car parts production: can the Philippines catch up with Asia?

Abstract

The Philippines pioneered the establishment of automotive assembly in South-east Asia in the 1950s. But Thailand, Indonesia and Malaysia lead the region since the 1990s. The foremost reasons for the decline are policy incoherence and unchecked inflows of smuggled cars, which are reflected in the erosion of the domestic automotive components supply base. Japanese assemblers are increasingly sourcing them from abroad through global production networks (GPNs), which have also made the Philippines a global producer of selected auto parts. Institutional support is necessary for the Philippines to take advantage of GPNs to catching up with the leading countries.

Keywords::

• automotive
• global production networks
• comparative advantage
• supply chain

Acknowledgements

I am grateful to the Economic Research Institute for ASEAN and East Asia (ERIA) for funding this fieldwork used in the preparation of this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

^1. The Philippine economy went into a recession in 1980–1982 and plunged into a depression in 1983–1985. Economic recovery in the second half of the 1980s was rendered difficult by the tumultuous political divisions and the debt problems left behind by the Marcos Administration (Ofreneo 1993).

^2. The December 2012 closure was the second for Ford, a PCMP participant in the 1970s. It shut down its assembly plant in the early 1980s, at the height of the Philippine economic crisis. It returned in the late 1990s with the promise to make the Philippines as Ford's production hub for the ASEAN region. The government gladly extended fiscal incentives to Ford. More than 80,000 CBU units (Mazda 3, Escape and Focus models) worth US$1 billion were shipped out to Indonesia, Malaysia and Thailand from 2002 to 2012. However, there was a big gap in production capacity and sales. In 2011, Ford was able to sell 9778 units, although its Philippine assembly plant could churn out 25,000 units a year (Rappler.com2012; Remo 2012).

^3. Ironically, the government requested for exemption from the TRIMs conditionalities up to 2000, which was extended up to 2003. The exemption was rendered meaningless by EO 156 (Ofreneo 2008).

^4. In 1999, the Philippines was considered the biggest source of auto parts destined for Japan (see Mori 1999).

Additional information

Notes on contributors

Rene E. Ofreneo

Dr Rene E. Ofreneo, Professor XII of the University of the Philippines, teaches labor economics and industrial relations.