Automotive Parts Industry

The automotive industry in the Philippines is the 9th largest in the Asia-Pacific region, with approximately 273.4 thousand vehicles sold in 2019. Most of the vehicles sold and built in the Philippines are from foreign brands. For the most part, the Philippines is dominated by Japanese automobile manufacturers like most of its neighboring countries belonging to the Association of Southeast Asian Nations (ASEAN) . The automobile production in the country is covered under the Philippine Motor Vehicle Development Program implemented by the Board of Investments (BOI). In addition, there are also a small number of independent firms who assemble and fabricate jeepneys and other similar vehicles, using surplus engines and drivetrain parts mostly from Japan.

The Philippine automobile industry consists of two sectors: motor vehicle assembly and vehicle parts and components manufacturing. The country also has an active premium car market and commercial vehicle segment.

Statista.com states that “the automotive industry has been a thriving sector in the Philippines. Across the Asia Pacific Region, the Philippines ranked 11th among the countries with the highest passenger cars sold, with approximately 153.83 thousand vehicles in 2020. A recent survey revealed that around 43% of Filipino households owned a motorcycle or a tricycle and around 9.3% owned a car, jeep, or van. However, due to the ongoing coronavirus (COVID-19) pandemic, vehicle sales have been greatly affected, resulting in a 39.5% decline in 2020.”

It further states that “Commuters spend a minimum of one and a half to two hours on the road. With the public transportation inflow of passengers, especially during rush hour, several consumers opt to purchase their vehicles despite the traffic congestion in the Philippines. As of October 2020, light commercial vehicles such as SUVs and vans were the highest selling type of automobile cars in the country, given the large size of Filipino families and households. In that year, around 61 thousand new SUVs were registered under the Land Transportation Office (LTO), although motorcycle registrations remain the highest amongst all vehicle types. In densely populated cities and urbanized regions like Metro Manila, the outpour of vehicles on the road is one of the leading causes of traffic congestion. With the rising population, public transportation is not enough to cater to all commuters. In 2019, the number of people living in urban areas was approximately 47 million. The urban population accounted for almost half of the total inhabitants within the Philippines.”

According to the DTI, the vision of the auto parts industry is to strengthen the position of the Philippines as a significant automotive player in the medium-term and become a regional hub for vehicles and parts in Asia supported by a strong domestic supplier base.

The industry’s objectives are: “(1) to develop an internationally competitive and viable automotive parts industry, in terms of product range, price, quality, and on-time delivery; (2) to enhance value added and local capabilities in the automotive parts industry through improvement of processes, technology and human capital; and (3) to promote export-oriented parts and components manufacturers.”

The DTI states that “[in 2019] the Philippine domestic auto parts industry is composed of 256 companies producing around 330 different parts and components. With four (4) Japanese automakers operating in the country, the industry represents some growing agglomeration economies in the Laguna and Cavite area.”

However, “the auto parts industry is facing competitiveness issues due to the absence of economies of scale and a weak supply base.” To help firms achieve this, strategic industrial upgrading policy and carefully designed temporary subsidies are needed.

DTI further states that “for domestic-oriented small and medium sized firms, the challenge is improving their competitiveness to enable them to compete in a more liberalized market. For export-oriented ones, it is important to identify ways and measures on how to maintain their competitiveness and take advantage of future opportunities. In both types of firms, expanding existing linkages and developing new ones would be crucial for the industry’s growth and development.”

Based on research, “Asia will be the most dynamic market, especially with the steady growth of China, India, and the Southeast Asian countries. The creation of the ASEAN Economic Community (AEC) in 2015 along with other ASEAN+1 Free Trade Agreements (FTAs) offer increased trade and investment opportunities, as well as cooperative arrangements through joint ventures or mergers. There are also strong growth potentials in specializing in certain core processes and alternative fuel and e-vehicles and parts, given growing environmental and safety concerns.”

The DTI states that “within the context of these opportunities and challenges, the Philippine auto parts and components industry is envisioned to become a significant player in the medium-term and become a regional hub for vehicles and parts in Asia supported by a strong domestic supplier base.”

In line with the strengths and weaknesses of the industry, three major strategies are proposed to be implemented: “(i) enhancement of the competitiveness of Filipino parts and components firms; (ii) creation of an incentive program to support the adjustment of the parts and components sector as the automotive industry is transformed from completely knocked-down assembly to full manufacturing; and (iii) creation of a more predictable environment for business operations.”