BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION MAJOR IN MANAGEMENT School of Management
University of Asia and the Pacific
An Analysis of Automobile Retail Industry
Submitted in Partial Fulfillment of the Requirements for MGT221: Industry and Region Market Analysis
Submitted by: Amoncio, Martin T. Escolin, JC C. Ilagan, Jason B. Melendres, Raffy H. Tirazona,Ivy N. Submitted to: Mr. Patrick S. Zeta Faculty-In-Charge March 2016
Chapter 1:Industry Proposal Definition of the Industry
Industry’s Products and Services Identification of Major Players
Linkages in other sectors in the economy Relationship of Industry to Macro economy Chapter 2: Basic Demand and Supply Conditions
Supply Conditions Production Process
Major Investment Requirements Raw Materials Sourcing
Sensitivity to Major Supply Factors Capacity Utilization
Bargaining Power of Suppliers Demand Conditions
Domestic and Export Market Demand Determinants Bargaining Power of Buyers Chapter 3: Competition
Industry Structure
Major Players in the Industry Competition from Substitutes Entry/Exit Barriers
Chapter 4: The Regulatory Environment Degree of Government Regulation
Government Regulations Affecting the Industry Effect of Regulations on the Industry
ASEAN Integration Chapter 5: Industry Performance
Summary of Five Forces
Analysis of Financial Performance Critical Success Factors
Key Risk Areas
Chapter6: Industry Prospects for the Next Three Years Growth Projections
Changes in the Market Share and Industry Structure Significant Changes in the Five Forces
Chapter 7: Conclusion and Recommendation Summary and Conclusion
Chapter I: Industry Background A. Industry Background
Definition of the Industry
According to the Philippine Standard Industrial Classification (PSIC) of 2009, the Automobile Industry is included in the Section G of PSIC Code. This section includes wholesale and retail sale (i.e. sale without transformation) of any type of goods and the rendering services incidental to the sale of these good. Wholesaling and retailing are the final steps in the distribution of goods. Goods bought and sold are also referred to as merchandise. Also included in this section is the repair of motor vehicles and motorcycles.
PSIC CODE
Section G Wholesale and Retail Trade; repair of motor vehicles and motorcycles
Group 451
Class 4510 Sales of motor vehicles Subclass 45109 Sales of other motor vehicles
Table 1: Based on the Philippine Standard Industrial Classification Code
Sale without transformation is considered to include the usual operations (or manipulations) associated with trade, for example, sorting, grading, and assembling of goods, mixing (blending) of goods (for example, sand), bottling (with of without preceding bottle cleaning), packing, breaking bulk and repacking for distribution in smaller lots, storage (whether or not frozen or chilled), cleaning and drying of agricultural products, cutting out of wood fiberboards or metal sheets as secondary activities.
Division 45 includes all activities related to the sale and repair of motor vehicles and motorcycles, while Division 46 and Division 47 include all other sale activities. The Distinction between Division 46 (wholesale) and Division 47 (retail sale) is based on predominant customer. The Automobile Industry is also included within Division 45, which is the “Wholesale and Retail Trade and Repair of Motor Vehicles and Motorcycles. This division include all activities (except manufacture and renting) related to motor vehicles and motorcycles, including lorries and trucks, such as the wholesale and retail sale of new and second hand vehicles, the repair and maintenance of vehicles and the wholesale and retail sale of parts and accessories for motor vehicles and motorcycles. Also included are activities of commission agents involved in wholesale or retail sale of vehicles. This division also includes activities such as washing,
polishing of vehicles, etc. This division does not include the retail sale of the automotive fuel and lubricating cooling products or the renting of motor vehicles or motorcycles.
The Automobile industry is included in the class 4510, which is the sale of motor vehicles that includes the wholesale and retail sale of new and sales of vehicles.
Industry’s Products and Services Products:
The Automobile retail ranges to numerous types of automobile that includes a 3-door Hatchback, 5-door Hatchback, Sedan, Wagon, Coupe, Convertible, AUV, MPV, Van, 3-door SUV, 5-door SUV and a ‘Pickup’ type (Shankar, 2013). The most popular vehicles among all of these types is the 5-door SUV or the sports utility vehicle, it is one of the fastest growing vehicle categories in the industry today. Due to the value for money it offers, with its interior space and capability to withstand a moderate amount of flood, it is the best type of car for our kind of environment (Shankar, 2013).
Once the customer bought the product, there is a chance that they may or may not receive freebies depending on the car dealership. But typically, the product includes the following freebies (Santos, 2014):
Free three-year LTO Registration anywhere from P12, 000 to P36, 000, depending on the vehicle’s classification or type.
Free one-year comprehensive insurance (roughly 5% or less of the vehicle’s principal amount).
Free window tint anywhere from P5000 to P40, 000, depending on the window tint brand and size of the vehicle.
Free under-chassis rust proofing from P5, 000 to P10, 000, depending on the size of the car.
Free interior cabin matting
These are the typical freebie items you will get from most car dealerships. But this is not something imputed into the cost of the car; it is something dealerships throw in for free to sweeten the deal.
Services included are depends on the condition of the car after the purchase. If the car is less than three years old and has fewer than 36,000 miles (or whatever the terms of warranty are), mechanical problems will be fixed under the bumper-to-bumper warranty for no charge. However, this doesn't cover wear items like brake pads, and since the car is still cover under the "routine maintenance" of the dealership for which the customer requires to pay. Routine maintenance is most often oil and filter changes, tire rotations and various inspections. After about the length of your warranty, the routine maintenance often becomes more involved and more expensive, for example, the change of oil every 3,000 miles, filter change, tires rotation, maintenance repairs, etc. Buying a new car will merit a cost of about P2, 500 worth of maintenance for every 5,000 kilometers driven (Santos, 2014).
B. The Industry and the Macroeconomic
Identification of Major Players
Based on the report of CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.) and AVID (Association of Vehicle Importers and Distributors), the key players in the Automotive Retail Industry in the Philippines are Toyota, Mitsubishi Motors, Hyundai, Ford, Isuzu, Honda, Nissan, Kia, Suzuki, and Chevrolet (Inquirer, 2015). But to understand more about the Philippine auto industry, one must look at the background of CAMPI and AVID. CAMPI was founded in May 1995 by Jose Ch. Alvarez to strengthen the auto industry by consolidating the players into an all-inclusive organization and coordinating with the government in forming policies, programs, regulations and standards for the industry, including the Motor Vehicle Development Program and Progressive Car Manufacturing Program which have been superseded by CARS (Campi, 2014)
On the other hand, AVID was organized in July 2010 by Ma. Fe Perez-Agudo, the president and CEO of Hyundai Asia Resources, Inc. AVID aims to improve the industry’s competitiveness by assisting government and private sector experts in crafting a system of industry laws and regulations that advance free and fair competition and consumer welfare.
Toyota
Toyota Motor Philippines Corporation or TMP is an automotive manufacturing company that formed in August 3, 1988. It is a joint venture of GT capital holdings GT Capital Holdings,
Inc., Toyota Motor Corporation, and Mitsui & Company Limited. In the year 1995, Toyota Laguna was declared as a special economic zone. The special economic zone had 82-hectares of the special zone houses Toyota’s manufacturing plant and head office. In addition, it is also a place for a number of investors performing the strategic roles in the manufacture and export of the automotive products to ASEAN, Japan and other parts of the world. Toyota Motor Company is the largest automotive company in the Philippines. It includes 17 lined-up models and sales distribution. The service network is composed of 47 outlets nationwide. Toyota’s models include Vios, Innova, Fortuner, Rav4, Camry and many more models. Toyota is the distributor of Lexus brand in the Philippines and also includes a dealership in Metro Manila (GT Capital, n.d.).
Mitsubishi
Motors Corporation is the longest staying automotive company in the Philippines, and it offers world-class products and services. Mitsubishi markets 16 models of vehicles, which include Lancer Ex, Montero, Mirage, and many more models. Hikosaburo Shibata is the head of the Mitsubishi Motor Company. The company makes thousand of vehicles a year. It has 190,224 square meters in Ortigas avenue extension. Mr. Shibata focuses on four major concerns namely Manufacturing, Marketing, Labor and Community Involvement. Mitsubishi Motors Corporation continuous to provide customers with the best products and services (CAMPI, 2014).
Hyundai
Hyundai was ranked the fifth-largest automakers in the year 2007 and it includes two auto-related subsidiaries. It exported its first made car called the “Pony” in 1976. Now, Hyundai exports a million high qualities of vehicles. In 2012, Hyundai sold over 3.6 million cars worldwide, and up to 16.3 percent in the year 2009. Since it is employing 78,000 nationwide, it focuses on implementing a new global policy that includes product development, design, sales, marketing, and consumer services to satisfy its customers (Hyundai Motor Company, n.d.).
Ford
Ford Philippines has a four billion Laguna Plant located in Greenfield automotive park in Sta. Rosa Laguna. It has a capacity of 25,000 vehicles per year and can produce different
Lastly, Ford Philippines is the second largest automotive company in the world (Ford Philippines, 2015).
Nissan
The Nissan Philippines, Inc. (NPI) was founded on September 23, 2013 and is a joint venture formed by Nissan Motor Co., Ltd. (Nissan) and longtime partners Universal Motors Corporation (UMC) and Yulon Philippines Investment Co. Ltd. (Nissan Corp., n.d.) Nissan Philippines Inc. (NPI), which has a 3 percent market share, aims to grow at a faster 40 percent increase in sales this year to improve its market share to 8 percent saying the consolidation of its two separate entities in the country would give them enough power to push products in this strong domestic motor vehicle market (Magkilat, 2015).
Linkages with other sectors in the economy
The automotive retail sector affects many other sectors in the Philippine economy. Plenty of sectors have use for automobiles whether it be for transporting goods, transporting employees, or transporting customers. The other sectors linked with the automobile retail in the Philippines are the public utility sector and the commercial sector. According to an online article published by Rappler (2015) the Chamber of Automobile Manufacturers of the Philippines Incorporated (CAMPI) and Truck Manufacturer’s Association (TMA) reported an increase in sales of vehicles for the first quarter of 2015 compared to 2014. The sales in the first quarter grew from 51,722 in 2014 to 62,882 in 2015, a 22% increase. The trucks and buses under the commercial vehicle category saw a large increase in sales from 419 units in 2014 to 706 units in 2015 according to the report. The reason for this was that the public utility sector had to comply with the re-fleeting program issued by the government as mentioned in the report. Government programs such as the re-fleeting program would cause the public utility sector to heavily depend on the automotive retail industry as they are forced to change the vehicles regularly. The commercial sector depends a lot on the automobile retail for vehicles as a means to transport their goods and produce their services. Both the commercial sector and the public utility sector are affected by the automotive retail industry as a change in price of vehicles could affect their day-to-day operations (Rappler, 2015).
Relationship of Industry to the Macroeconomy
The automobile retail market is influenced by a variety of individual features and macroeconomic conditions. This includes new car demand, first car versus replacement car demand, used car demand, used and new car sales ratio, car parc density and income levels (KPMG, 2013)
Every automotive retail market goes through certain maturity stages: firstly an easy selling period, it is characterized by strong new car demand leading to the development of a large and reorganized retail network structure, followed by a ‘hard selling’ period, leading to a consolidation and centralization of the retail network, due to decreasing first-car demand. Each maturity stage requires a unique retail strategy and distinct set of management competencies and KPIs. These have to be re-evaluated as soon as a retail market shows signs of changing from easy to hard selling mode (KPMG, 2013)
Parts retailers are also affected by the normal macroeconomic environment, but to a lesser proportion. Their own merchandising and remodeling initiatives and unit development strategies influence these usually less-mature, faster-growing outfits. And also, they are subject to secular long-term trends, including fluctuations in the older-vehicle population and the number of licensed drivers. Because of their more attractive growth profiles, parts company stocks, by and large, trade at higher price/earnings multiples than dealer issues. Notably, about 70% of all parts purchases made by consumers and commercial customers are need-based, rather than discretionary. This helps to shield aftermarket parts retailers from unwelcome economic headwinds (Value line Corp., 2015)
Partnering with
Automaker
Partnering with
Automaker
Importing
Importing
Managing
Inventory
Managing
Inventory
Distributing
Invetory
Distributing
Invetory
Operating
Stores
Operating
Stores
Advertisin
g
Advertisin
g
Demonstration
Demonstration
Negotiating the Sale
Negotiating the Sale
Chapter II: Basic Demand and Supply ConditionsA. Supply Conditions
Production Process
Figure 1: Production Process of Automobile Industry
Automobile Retail Industry is the business of selling new and used cars. The process involved in selling cars. Dealership advertises automobiles they have available and provide a location for potential customers to see the cars. The salesperson then qualifies the prospect to see what type of automobile is desired. He shows or demonstrates the car. Then the salesperson tries to convince the prospect to buy the car, often through negotiation. If the decision is positive, the prospect becomes the customer who purchases the vehicle (Kurtus 2012). The Production process of the Automobile Industry is mainly focused on the Midstream
to Downstream of the Value Chain since its main production process consist of buying and selling.
In conclusion, the activity of selling a new or used automobile consists of advertising because it let a potential customers know what is available and where to go to see it. The salesperson then qualifies the prospect to see what type of automobile is desired and demonstrates the car. He tries to convince the prospect to buy the car, often through negotiation. The person will either agree to buy the car or go elsewhere.
Major Investment Requirements
There are over 530 players in the Automotive Retail Industry. It must have 21 passenger car and commercial vehicle assemblers and distributors, 256 parts maker, and must have more than 240 dealer outlets nationwide.
To make a vehicle in the Philippines, the Automobile Retailers should be a member of the Motor Vehicle Development Program to produce a vehicle. In addition, it must have certain requirements, that includes a 40% parts content and having the right budget to meet the foreign exchange rate when importing other components.
The Philippine Automotive Manufacturing Industry or PAMI has an estimation of 8,000 workers in auto-manufacturing. 256 of the auto parts is located in Manila, Laguna, and Cavite that generated over 68,000 jobs. Lastly 340,000 are under the auto-supporting industry. Even though high-skill requirements are needed, PAMI accepts high school and vocational graduates.
Raw Materials Sourcing
The raw materials are the basic material used to in making a product. Since the main product of Automobile Industry is the Car itself, the raw materials sourcing are heavily found in the Automobile Manufacturing Industry. To support that, the Automobile Retail Industry source the raw materials by the Automobile Manufacturing Industry. According to H. Kallstrom (2015), the raw materials account for the biggest cost of production for automobile manufacturers. The article shows that the one of the top 4 cost drivers of manufacturing of the automotive industry are raw materials. The raw material is the 47% of the total cost of production. Looking inside,
the total raw materials consists of 47% of it is steel, 8% is iron, 8% is plastic, 7% aluminum, and 3% glass with steel amounting to 22% of the total cost of production (H. Kallstrom, 2015). This means that the automotive industry would heavily depend on the steel industry for its production, as a change in price of steel will heavily affect the automotive industry.
An article published by Crain Communications (2013) shows a chart of the top suppliers of automotive parts to the different manufacturers around the world. The chart shows that the top suppliers of automotive parts for the year 2012 is Robert Bosch GmbH based in Germany with its total sales amounting to $36,787 million with 52% of the total sales going to Europe. Meanwhile, the highest supplier of automotive parts that is based in Asia is Denso Corp. from Japan. The estimated sales of Denso corp. for the year 2012 amounts to $34,200 million with 71% of its total sales coming from Asia according to the article published by Crain Communications (2013). Denso corp. is ranked #2 worldwide for automotive parts suppliers in 2012 as shown in the chart.
Sensitivity to Major Supply Factors
Economy
The economy is a factor that affects multiple industries. The good economy will drive up spending of the population and this increased spending would require the automotive industry to hire workers and increased their supply in order to keep up with the growing needs of the populace. An economy that is experiencing a recession on the other hand would have to lay off workers as a result of the reduce spending of the people due to the recession. The automotive industry would have to reduce their supply in order to continue to become profitable in these times.
Price of Raw Materials
Another factor that affects the supply of the automotive industry is the price of raw materials. Since the cost of raw materials of automotive manufacturers to produce a single vehicle is 47% of the total cost (H. Kallstrom. 2015), an increase in price of commonly used materials such as steel will easily affect the supply of automobiles. It was mentioned in an article written by A. Klettner that in 2010 an increase in steel prices occurred as the steel
manufacturers wanted to take advantage of the rising demand in metals. This caused Toyota to warn their car and parts suppliers so they could adjust prices and avoid a decrease in profits.
Government Policies
Regulations and rulings made by the government may also affect the supply of the automotive industry. It is mentioned in Toyota’s report on risk factors (2011) that the laws and regulations made by the government heavily affect the industry. Industries are required to find a way follow the vehicle safety, minimum emission levels, and noise levels set by the government while still being able to keep the price down for the consumers. Other regulations that affect the industry are laws that affect raw materials such as mining ban. M. Ramesh (2011) mentions in an article that the automotive industry fears shortage of raw materials due to government in Karnataka issuing a mining ban. The article mentions that three different manufacturers use material from that mine in order to produce cylinder blocks and heads that make up automobile engines.
Natural Calamities
Fortuitous events such as earthquakes and storms have an effect on the supply of many different industries. One example of a natural calamity that heavily affected the supply of the automotive industry is the Great East Japan Earthquake in March of 2011. Toyota’s Risk Factors (2011) mentions that Toyota had to stop all of its operations due to the damages the earthquake caused. Toyota reported that it was able to resume operations as of April of 2011 for its domestic factories but factories overseas were still unable to return to full operations as of December 2011.
Capacity Utilization
Capacity Utilization rate measures the rate of potential output levels are being met. In a business world, if a company is running at 70% capacity rate, it has room to increase production up to a 100% utilization rate without incurring the expensive costs of equipment. Capacity utilization rates can also be used to determine the level at which unit costs will rise (Investopedia).
In the Automotive Retail Industry, the automotive retail industry can be based according to numbers of automobile produced compared to the number of sold cars. According to the report of CAMPI and AVID, the industry’s target of 310,000 units is for the entire year. The table below shows that first half sales (January to June) of Automobile Retail Industry in the Philippines (Inquirer, 2015). Also, the potential market sales of 310,000 are divided into to two to get the potential market sale for the half year.
Actual Units Sold last January – June 2015 Toyota Mitsubish i Hyunda i Ford Isuz u Hond a Nissa n Kia Suzuk i Chevrole t Total 57, 717 25, 198 10, 689 10, 427 10, 169 8, 735 5, 186 4, 898 4, 843 3, 991 141, 853 Figure 2: Actual unit sold based on the report of Inquirer
Capacity Utilization Rate
Actual Potential Capacity Utilization
141, 853 155, 000 91.52%
Bargaining Power of Suppliers
Overall: Low
The Bargaining Power of Suppliers in the Automotive Retail Industry can apply a competitive force in an industry by raising prices or reducing the quality of the car they sell. The bargaining power of suppliers is low because there is many other manufacturers from across the country chosen to be the supplier of the Automobile. Moreover, it takes many importers to accomplish this, when there are many suppliers (manufacturer) in the Automobile Industry, they do not have much power to increase the price of the car since there are many other automotive manufacturer in the market from different countries that the retailers can easily switch to another retailers if they want to. For example, Toyota has more than 10 different suppliers in US. The main qualifications of the suppliers are the quality, cost, and delivery of the products. If suppliers can’t meet those basic considerations, there is many other manufacturers to chose from (Martin, 2014).
B. Demand Conditions
Domestic Market
The Philippines has the fifth lowest car ownership in the world, with about 47 percent of Filipino households not owning a car, according to the Nielsen Global Survey of Automotive Demand. (GMA News Online, 2014). Furthermore, the Philippines are among the Top 10 countries globally with the highest intention to acquire a car within the next two years. The survey showed 76 percent of Filipinos would buy a car in the next two years.
The Automotive demand in the Philippines has been relatively low and for many households owning a car has been financially out of reach (Jamieson, 2014). However, it is expected that a more strong automotive demand in the next years as more households join the middle class and reach the financial mean to make their first car purchase.
Among Southeast Asian car owners, Filipinos at 72 percent are the fifth highest globally who view a car as an important symbol of the success they have achieved in life. In the Philippine setting, almost majority of the consumers in the Philippines are middle class, Filipinos are not only in a better position to buy the things they want and need, they are also looking to make purchases which demonstrate their improving social status (Jamieson, 2014). Car ownership is the ultimate symbol of the success they have achieved (GMA News Online, 2014).
Export Markets
In the Philippine Automobile Retail Industry it is given that our country do import vehicles to and not export. The export goods (equipment and parts produced locally) lies on the Automobile Manufacturing Industry that are then used by the most major players in the industry.
Demand Determinants
According to the Auto industry reporter, car loans is the biggest driving factor for the development of the demand of automobile industry. Attractive consumer loan programs raise the strong demand for passenger cars and commercial vehicles, and have made the Philippine auto industry thrive. A recent BSP (Bangko Sentral ng PIlipinas) survey showed banks reported an overall net increase in the demand for household loans in the first three months of the year because of low interest rates and attractive financing terms. This development happened despite continued tightening standards on loans extended to households. The growth in consumer loans was driven by a 26% rise particularly on in auto loans to P244.61 billion.
Consumer loans continue to finance housing and cars for Filipinos. In 2014, one of the fastest growths among all categories was automotive lending. Automotive demand in the country continues to grow as more sellers offer attractive rates coupled with very low down payment from financial institutions (Carmudi PH, 2015).
Advertising And Marketing
According to the 2013 McKinsey report on Automotive Retail Innovation, it states that auto dealers are no longer the primary source of information especially for consumers between 18 and 34. Consumers up to 90% in this group use a mix of OEM (Original Equipment Manufacturer) and dealer sites, forums, blogs, and social media to gather information and compare prices and offers before making their final decision. Taking Internet to research and purchase cars became more hit to auto dealer consumers.
With Internet and mobile penetration, it shows that the growing car shopping experience online is beginning to align that of Western Markets. In the Philippines, one of the top five countries in Internet and mobile penetration, almost 80% of car buyers use the Internet to conduct research on a car before making a purchase (Carmudi PH, 2015)
Price Of The Car
One of the major factors that affect the demand of car in the market is the price of the commodity. As the law of demand also states that with an increase in price the demand of the commodity decreases and vice versa.
Income Of Consumer / Buyer
The income of the consumer or buyer of the car is a very important factor of demand. With growing economic expansion and growth of the middle class, the Philippine automobile industry showed an outstanding performance throughout last year and early 2015. In the first quarter of 2015, the sales reached 62,882 units, which broke the 60,000-unit record for the first time.
The ASEAN Automotive Federation reported that on the first half of 2014, the Philippines is the fastest-growing automobile market in the region, ahead of Singapore, Malaysia, Indonesia and Vietnam. Higher income, plus easier financing, has contributed to stronger sales, especially in private cars (Carmudi PH, 2015)
Increase In Affordability
The trend between GDP Per Capita and level of car ownership relies heavily on a country’s economic development. Countries with low GDP per capita are seen to have a similarly lower level of car ownership as only few people, even the wealthy ones, are able to afford a car. Countries with greater population density tend to continuously improve on the public transport system and infrastructure, leading to a lower need for private cars or other types of vehicles. In other emerging markets, where the public transport system and infrastructure improvements are growing slowly, and safety standards are not being met, there is a greater incentive for people to opt for their own vehicles rather than rely on public transportation (Carmudi PH, 2015)
New Offerings
Car sales increase when a new model hits the market. Due to escalation in competition in Philippine car market, frequency of new model launches has increased. In the past one year only the Philippine car market has seen many launches namely Toyota, Honda, Mitsubishi, Suzuki, Mazda, Ford, etc.
The bargaining power of buyers is relatively high. New vehicle buyers like to shop around, collecting a wealth of information on the Internet and using it to negotiate with many dealers. In addition, because switching costs are low and new designs are well differentiated, it is possible that a market trend attracts large shares of the buyer market from one automaker to another. Consequently, The net effect is high buyer power.
Chapter III: Competition
a. Industry Structure
There are two methods that can be used to identify an Industry Structure. One method is the Herfindahl Index and the Firm Concentration Ratio. In this analysis, the Herfindahl Index will be utilized in the computation of the structure of the Automobile Retail Industry. The formula of the Herfindahl Index is as follows:
Σ[
sales of a firm
totalindustry sales
]2
Following the formula of the Herfindahl Index, and according to the Department of Trade and Industry (DTI), the total annual output of the Automotive Industry in the Philippines valued 368-Billion pesos. The total sales are divided from the top three firms: Toyota, Mitsubishi, and Ford which are (168 Billion), (P69 Billion), and (P32 Billion) respectively. The computation for the market structure of the industry is shown below:
[
168 Bi llion
368 Bilion
]
2
+[
69 Billion
368 Billion
]
2
+[
32 Billion
368 Billion
]
2
= .2511297785 or 25%The firm concentration ratio method was also used to compare the results of both methods and to accurately determine the industry structure. The formula of the firm concentration ratio is as follows:
Σ
sales of all major players
totalindustry sales
Computing for the industry structure using the concentration ratio, the total industry sales, with P368 billion, and the sales of each major players stays the same. The sum of the major players’ sales amounted to P269 Billion. The computation using the concentration method is shown below:
168 Billion+69 Billion+32 Billion
368
= 0.7309782 or 73%The Automobile Industry is under the Oligopoly because the industry lacks competition and product differentiation that are sources of market power. And also, there is only a few producers who produce an automobile since the industry requires large capital requirements before entering the market. In effect, there is only limited number of firms that can enter into the Automobile Industry in the Philippine Market. (Gilani, 2015)
Industry Structure Herfindahl Index Concentration Ratio
Tight Oligopoly .35 73%
Figure 3: Industry Structure
b. Major Players in the Industry
Toyota Motor Philippines
i. Market Share
Toyota Motor Philippines Corporation (TMP) is the reigning market leader with 45.2 percent share (CAMPI, 2015), who sold a total of 17,579 units in the January-February period of 2015 versus 13,988 units in the same period in 2014. TMP’s performance surpassed its market share to 44.7 percent from its past performance of 43.03 percent in the same period last year. The total revenue of the automotive industry generated production valued at P368-billion while the total sales of TMP generated up to 164 Billion pesos. The strong sales of Toyota last month were made possible through the continuous high demand of its best-selling vehicle in the Philippines, the Vios, with sales of 2,012 units. Other strong models in Toyota’s line-up such as the Fortuner, Innova, Wigo, Hilux, Avanza and Corolla Altis are further strengthened during February’s sales.
ii. Operations, Locations of Operations, Major Markets
The manufacturing plant and head office are located in Santa Rosa City, Laguna. It is a 82-hectares which they call the Toyota Special Economic Zone. It is also home to a number of investors performing strategic roles in the manufacture and export of automotive products to
ASEAN, Japan, and other parts of the world. TMP’s manufacturing plant proudly produces the Innova and Vios. It is capable of producing 35,433 units per year on two-shift production operations. Makati City. The company also has marketing offices at the 28th and 31st floors in GT Tower International in Makati City (CAMPI, 2015).
TMP’s dealers are located throughout the Philippines including in Metro Manila, TMP dealers are located on Abad Santos, Alabang, Balintawak, Bicutan, Commonwealth, Cubao, Global City, Makati, Manila Bay, Marikina, North-Edsa, Otis, Pasig, Pasong Tamo, Quezon Avenue and, Shaw. For Luzon they have dealers in Baguio, Batangas, Cabanatuan, Calamba Laguna, Camarines Sur. Dagupan, Dasmarinas-Cavite, Isabela, La Union, Marilao Bulacan, Plaridel Bulacan, Puerto Princesa, San Fernando Pampanga, San Pablo Laguna and, Taytay Rizal. In Visayas they only have 9 branches which includes, Bacolod, Cebu, Mandaue North, Mandaue South, Dumaguete, Iloilo, Tacloban, Tagbilaran and, Roxas. Finally for Mindanao they only have a handful of 6 branches, Butuan, Cagayan De Oro, Davao, General Santos, Tagum and, Zamboanga (Toyota, n.d.).
iii. Ownership and Length of Presence in the Industry
Incorporated on August 3, 1988, Toyota Motors Philippines has been in the country for over 25 years and is a joint venture of GT Holdings, Inc., Toyota Motor Corporation, and Mitsui and Co. Ltd. The Chairman of the Board is DR. George S.K Ty who serves his position since 2007 (GTCAPITAL, n.d).
iv. Rivalry/ Strategies for Competing
The Key Competitors of TMP in the Philippines include: Mitsubishi, Hyundai, Honda, Isuzu, Nissan and Ford. They all compete for the same market share, with Mitsubishi as their close competitors with 18.7 % of the market share (CAMPI, 2015). Their competitive advantages are: (1) Product Quality, Durability and Reliability and the (2) Value for Money, they offer affordable vehicles that has a high resale value in the market. Toyota also takes measures in environmental issues surrounding their products. They are active in managing powertrain efficiency and reduce the vehicle load, which in return saves fuel for the vehicle that will make it
Mitsubishi Motor Philippines
i. Market share
The Mitsubishi Motor Philippines is at the second leading market share of 18.74% (CAMPI, 2015). While according to the DTI report, the total revenue of the automotive industry generated production valued at P368-billion. In conclusion, the total sales of Mitsubishi Motor Philippines summed up to P68, 963,200,000.
ii. Operations, Locations of Operations, Major Markets
The Mitsubishi Motor Corporation (MMPC) located their manufacturing plant in the Auto Park Avenue, Greenfield Automotive Park, Sta. Rosa City, Laguna, since the province are great asset for business growth and expansion. The Head of the MMPC, Mr. Yoshiaki Kato made sure that the leading company focuses on four major concerns: Manufacturing, Marketing, Labor / Management Cooperation and Community Involvement. Furthermore, since the Mitsubishi Motor is known as a company with Total Customer Satisfaction, the company assuredly focuses on aligning the delivery of products and services to the complex and changing needs of the car buyers in the Philippines. The Mitsubishi Motor Corporation continually providing world class-products and services to the Philippine Market. Since the image of world class class-products and services are being provided, the company’s target market are the young executives from the upper-middle income bracket. The company made sure that the valued customers gets the quality product at its reasonable price (MMPC, 2012).
iii. Ownership and Length of Presence in the Industry
The Mitsubishi Motors Philippine Corporation (MMPC) was established as Chrysler Philippines Corporation during February 20, 1963. Through years of offering world-class product and services, it is known as the longest automotive company in the Philippines. In fact, last 2013, the company celebrates its 50th anniversary for its long-run operations (MMPC, 2012).
The MMPC president and chief executive officer is Mr. Yoshiaki Kato. He is also had a
significant positions in Mitsubishi companies in different parts of the world (Palana, 2015). MMPC selected three seasoned management Filipino experts coming from different fields apart from the automotive industry. These are Mr. Juan B. Santos, Mr. Deogracias N. Vistan and Mr. Edgar O. Chua. These three business experts have professional management experience that is important in expansion plan and successful business that will benefit the country (MMPC, n.d.).
iv. Rivalry/ Strategies for Competing
Since the target market of the Mitsubishi Motor Company are the young executives from the upper-middle income bracket, the competitors of the Mitsubishi Motors Company are Honda, Toyota, Nissan Motors, Hyundai Motors, and Ford which offer the same target group. According to Mr. Shibata, the MMPC President and CEO, the strategy includes the twenty-one (21) hectare land in Laguna, in order to increase their production of sales and production capacity. Mitsubishi motors have good sales in the Philippines, and it enables them to continue growing as a business even though the market competition is high. With the new hectare in Laguna bought by Mitsubishi, it will be able to make 30,000 units annually. In addition, it can also produce 50,000 vehicles yearly (MMPC, 2015).
Ford Motor Company
i. Market share
According to CAMPI (2015), for is ranked 3rd for total market share of the automotive industry in the Philippines having 8.6% of the total shares and had P31, 648,000,000 of the industry’s total revenue. In an article written by V. Saulon (2016), Ford was able to increase and hit record sales 25732, an increase of 25% making the Philippines Ford’s no.2 biggest market in the ASEAN region.
ii. Operations, Locations of Operations, Major Markets
base” according to an article in Rappler (2012). The article states that even though Ford’s manufacturing in the Philippines has ended it will still continue its retailing operations and even expanded to 12 additional dealerships totaling 35 within the whole Philippines.
Ford retailers are all over the Philippines that include provinces and cities such as Ilocos Norte, Cebu, Bohol, Metro Manila and Zamboanga (Ford, n.d). Ford has its largest amount of retailers in Metro Manila with 6 dealers in Quezon City, 1 in Manila, Muntinlupa, Taguig, Paranaque, Taguig, and 2 in San Juan (Ford, n.d).
In recent years Ford has been working to expand its target market. Cunningham (n.d) wrote that one of Ford’s biggest growth areas of sales are 18-24 year old. Because of this Ford has decided to expand itself further into that target market by trying to integrate the use of technology into their vehicles. Ford is trying to integrate technology into the modern automobile without “promoting driver mobile usage” as to avoid accidents (Cunningham, n.d).
iii. Ownership and Length of Presence in the Industry
In 1896 Henry Ford, the founder of Ford Motor Company, builds the ‘Quadricycle’ which was powered by a 4 horse power engine and had 4 bicycle wheels. The ‘Quadricycle’ could be said to be a prototype of today’s modern automobile. Henry Ford then joins the Detroit Automobile Company in 1899 but it was not until 1903 that Ford Motor Company is incorporated. It was in 1913 that Ford started using the assembly line to produce automobiles. The Ford’s assembly line proved to be one of the most important innovations as it was able to significantly cut the amount of time needed to produce a single automobile. In 2003 Ford Motor Company celebrated its 100th year anniversary and to this day still continues to be one of the world’s top automotive manufacturer and retailer (Ford, n.d.).
As stated in Ford Company’s corporate website the current President and Chief Executive Officer of the company is Mark fields since 2014. Fields started working at Ford Motors Company in 1989 and holds a degree in economics as well as an MBA from Harvard business school according to his profile at Ford’s corporate website. The current Executive Chairman of the company is William Clay Ford Jr. William Ford earned a master’s degree in management from Massachusetts Institute of Technology as well as an honorary Doctor of Environmental Sciences and Engineering degree from KPC University, honorary doctor of laws
from University of Michigan, and honorary doctor of humane letters degree from Bradley University (Ford n.d). The managing director of Ford Philippines is Kay Hart who was appointed back in 2013. Kay Hart has been working as Dealer Development and Field Operations Director of the company since 2009 (Ford Philippines, 2013).
iv. Rivalry/ Strategies for Competing
Ford’s market penetration helps them to be one of the best selling vehicles in the Philippines. They sell more products to their customers and it enables them to grow as a business. Ford a number of dealership and increasing their sales volume. Ford offers new products to its customers, and they invest new products through R and D (Ford Focus Electric). In contrast, Ford’s weakness is their market development. Ford has not yet taken any action to enter new industries and segment (Meyer, P. 2015).
ISUZU CORPORATION i. Market Share
In 2015, Isuzu Philippines is one of the top three brands in the Philippines, and it maintained its spot to number three. It sums around 29,072,000,000 billion (368,000,000,000 x 7.9%) sales revenue and had a total market share of 7.9%, and sold over 14,000 units. In addition, it increased it sales by 69%. (“Isuzu hold 8% market share: Maintains third spot in industry sales” 2015).
Isuzu’s sales in August 2015 increased by 66% and sold over 12,000 units compared to its 7,000 sold units in 2014. Their MU-x is one of the best selling SUVs with over 6,000 units sold (Mercurio, 2015).
ii. Operations, Locations of Operations, Major Markets
Isuzu Philippines is known for its diesel-powered vehicles. In 2012, Isuzu selected the “Oracle” automotive industry to gain a better management excellence and business processes. The products of Oracle will help Isuzu to have a good competitive advantage. In addition, Oracle’s “E-business suite 12.1” will help Isuzu to be more productive (InfoChat, 2012).
Isuzu started in the Philippines in the year 1995. Their main office is located at 114 Technology Avenue, Laguna Technopark, Biñan Laguna, 4024. It has 14 branches in Luzon, 8 branches in Metro Manila, 8 branches in Visayas, and 5 branches in Mindanao (Isuzu Philippines, 2015).
For Isuzu’s target market, they are targeting the share of the truck market in the Philippines, especially the heavy-duty category of trucks. In they year 2014, Isuzu Philippines introduced the “CYZ dump truck” and “EXR fuel tanker”. These two trucks were imported from Japan (“Isuzu targets more truck sales” 2014).
iii. Ownership and Length of Presence in the Industry
Isuzu started in the year 1916 in Japan. After the Second World War, Isuzu began to make truck to deliver food for the country’s reconstruction. In 1972, General Motors had a partnership with Isuzu to build the General Motors, and in 1995, Isuzu opened in the Philippines (Isuzu Philippines, 2015). Hajime Koso is the President and CEO of Isuzu Philippines (“Isuzu Philippines names new President-CEO, 2015).
iv. Rivalry/ Strategies for Competing
For Isuzu, competitive pricing is one of their strategies in the market. In addition, their trucks and buses are also the factors that helped them increase their sales in 2015. Isuzu’s N-series in Metro Manila and Visayas Region (Mandaue and Cebu) helped the manufacturers to be recognized not only in Metro Manila, but also in provincial areas. “We are adamant that these sales figures will continue to grow due to the fact that Isuzu is committed to provide its very best to Filipinos with regards to quality of our vehicles.” As stated by Mr. Koso, the CEO-President of Isuzu Philippines (“Competitive pricing boosts Isuzu sales, 2015.)
Competition from Substitutes
For this study, the main two competitions from substitutes of the automotive retail industry that will be discussed are the bicycle industry and the rail transportation industry. These two industries are growing fast and threatening the automotive retail industry. With the traffic in
the Philippines, especially Metro Manila, getting worse every day, the number of people looking for substitutes to automobiles is growing in order for them to avoid the rush hour traffic.
I. Bicycle Industry
First that will be discussed is the bicycle industry in the Philippines. Riding a bicycle is an environment-friendly alternative to using automobiles as well as a healthier choice due to the exercise given by riding a bike. The industry has been growing and the government saw the benefits of using bicycles instead of automobiles. The government filed a bill called the “Bicyclist Act of 2014” that encouraged people to ride bicycles to their destinations in order to reduce traffic and pollution in the Philippines. According to an article written by F. Rodriguez (2014), the bill will establish Local Bikeway Offices across all cities and municipalities in the country. The article mentions that the Rep. Emi Calixto-Rubiano from Pasay city, the representative who filed the bill, said that there is a need for better infrastructure for the projects proposed by this bill to work. F. Rodriguez (2014) also mentions in this article that one of the provisions of the proposed bill is to have a system to register bikes, require riders to wear proper safety equipment, as well as the creation of parks for leisurely bike rides. If Congress passes bills such as these, more and more people will switch to riding bicycles instead of enduring the horrible rush hour traffic. This will certainly cause the demand for automobiles to reduce in the future.
Just last 2014, Trek, the world’s largest bike brand has just opened its first store in the Philippines at Bonifacio Global City according to R. Fernandez (2014). The store offers Trek’s full range of products ranging from road bikes, mountain bikes, and city bikes. Trek Bike’s strategy in their first Philippine branch is to allow its customers to thoroughly customize their bicycles according to their needs through Trek’s Project One customization program (R. Fernandez, 2014). Trek’s customers would be able to customize the paint job of their bicycles as well as choose specific modifications of certain parts of the bike. Trek also has a system called “Precision Fit” that measures the rider’s efficiency on their bicycle to help them choose the right one. The price of Trek bicycles ranges from 12000-700000 PHP. This offers a cheaper and more environmentally friendly alternative to automobiles especially in the heavily populated areas in the Philippines such as Metro Manila.
The facility in Batangas is Shimano’s first within the country and employs 1000 workers during its operations. As stated in the article, Shimano is a firm that has 40 factories and sales offices with around 13000 employees and operates in more than 20 different countries.
With the growing health and environmental consciousness of the people as well as the terrible traffic conditions in the Philippines, the bicycle industry is becoming a larger threat to the automotive industry every day.
II. Rail Transport Industry
The rail transportation industry is also a substitute of the automotive industry that they must compete against. An operator of rail transportation within the Philippines is the government owned Philippine National Railways. According to PNR’s corporate profile (n.d), the company was officially formed during the Spanish colonial era in November 24, 1892 which was then called as the Ferrocarril de Manila-Dagupan and then renamed to the Manila Railroad Company during the American colonial era and renamed once again in June 20, 1964 by Republic Act No. 4156 as Philippine National Railways. The PNR operates two commuter rail services. One of which runs through Metro Manila and the other in the Bicol region that is currently under rehabilitation as the PNR plans to extend the railway through Naga City and Legazpi City.
Another company in the rail transportation industry is the Light Railway Transit Authority or LRTA, and just like the PNR, is government owned. Their company profile (n.d) states that the LRT was first established in July 12, 1980 under Executive order No. 603. The LRTA’s operations are within Metro Manila with two line systems with the first line spanning 18.073 kilometers and the second line 12.56 kilometers. The LRTA promotes itself as being able to provide reliable, efficient, dependable, and environmentally friendly rail system according to their company profile (LRTA, n.d).
The Metro Rail Transit Corporation or MRTC is another company in the rail transportation industry and is government owned like the other two rail transportation companies. The MRT line is placed along EDSA, which is known for heavy traffic conditions especially during the rush hours. The MRT system was built in order to reduce the traffic congestion in Metro Manila caused by automobiles and is designed to carry 23000 passengers per hour in both directions and can be expanded for 48000 passengers (DOTCMRT3, n.d).
Due to the worsening traffic conditions in Metro Manila, more and more people are considering taking the MRT and LRT lines are substitutes for automobile transportation such as private cars or buses. According to the Philippine Year Book of 2013, the revenue and number of passengers for the railway industry increase significantly from 2012 to 2013. The report shows that in 2012 the total number of railway passengers in 2012 amounted to 15,616,072 with revenue of 181,110,047 pesos and in 2013 these numbers increased to 19,957,604 passengers and 234,389,292 pesos. This shows that more people are willing to substitute automobile transportation for railway transportation, which is most likely due to the heavy traffic in Metro Manila.
Barriers to Entry/Exit
Capital Requirements: High
One of the barriers to entry in the automotive retail industry is the extremely high amount of capital that is required to purchase physical stores, raw materials that’s going to be used, as well as to hire and train employees, and also the services each automotive retail has to offer in order to compete with its competitors. Because of the high cost in capital as of today there are no local automobile retailers in the Philippines there are only foreign companies like Toyota, Mitsubishi etc that was able to penetrate the market. There are a lot of foreign automobile retail companies that has penetrated the market in the country because they all have established themselves as top brands in their own respective countries and all of the Filipinos trusts them already because of the credibility that they showed (Investopedia, N.D)
Product Differentiation: High
Each type of automotive retail franchise will have their own unique factors that affect the demand for their services in order to attract customers and to stand out in the industry because of the nature of the industry. So it’s important to understand what those factors are. The companies can use their own spin to it in the industry in order to acquire brand loyalty to the customers. Like for example there are companies that offer cheap cars so that some people can afford them. Toyota can attest to this because one of their top selling vehicles is Vios. Some taxi companies in the Philippines use Vios as their brand of choice because it’s cheap and the gas is
attract customers. The automotive retail physical stores also plays a big role in differentiating themselves from the completion. There are stores that are big in area or small. The size of the stores determines how many vehicles a car company can store in order to show to the public. Obviously the bigger the store there’s a wide variety available the smaller the store limited (Pergerson, 2015).
Brand loyalty
This is important to every company in the market not just the automotive retail industry in order to sustain its consumers. Brand loyalty is difficult to get in the automotive retail industry because consumers can just switch car companies to the other unless they cannot afford their products. For an average consumer there choices of car brands are Toyota, Mitsubishi or Ford. These three companies has the most loyal customers in the market because of the quality of the products they make, but as of now Mitsubishi faces a difficult time in keeping their customers loyalty because of the controversies they are facing right in one of their products. This is an example that quality is the most important characteristics that car companies must focus on because one single mistake in their product can cost a lot of negative feed back of the company from its consumers.
Switching cost: HIgh
The switching cost in the Automobile retail industry is high. Let's say if you would like to change from buying a Honda car to a Ferrari one, this would take you a higher amount of money for you to pay. However, the switching cost is not only mean in term of the money or the amount you have paid, but this also involves your time, energy used. Since a car is quite expensive and that customers want to find and get the best products, therefore the cost of switching from one brand to another brand is high and the range of price among brands are quite different.
Access to distribution channels: High
In the automotive industry Access to distribution channels is another high barrier to entry. A company must find a dealership to sell their automobiles or have their own dealership. Space in the dealerships lots is very limited making it difficult to have a wider variety of inventory.
The automotive retail industry has high exit barriers, which means that firms would rather keep competing with each other than to close their business, because of the high costs and investments. It would be a waste if they just decided to exit out the market. Unless they are bankrupt which a not well-known car company might have a problem with.
Chapter IV: The Regulatory Environment
A. Degree of Government Regulation
Government Regulations affecting the industry
1. EXECUTIVE ORDER No. 877, s. 2010: The Comprehensive Motor Vehicle Development Program
2. EXECUTIVE ORDER NO. 182: The comprehensive Automotive Strategy Program
SECTION 1. Comprehensive Automotive Resurgence Strategy Program. The Comprehensive Automotive Resurgence Strategy Program, herein referred to as the stimulate demand and effectively implement industry regulations that will revitalize the hub.
The thrust of this Program is to provide time-bound, and output or performance-based fiscal support to attract strategic investments in the manufacturing of motor vehicles and parts thereof. Other non-fiscal measures already provided by existing laws, rules and regulations, shall continue to be systematically implemented by the relevant government agencies.
SECTION 2. Coverage. The CARS Program shall be limited to the manufacture of three (3) Models of four-wheeled motor vehicles, and shall cover the following activities:
Production of the enrolled Models;
Manufacture of Body Shell Assembly and Large Plastic Assemblies of the Model;
Manufacture of Common Parts and Strategic Parts not currently produced in the country at Original Equipment Manufacturer (OEM) standards of the Model/s; and
SECTION 4. Functions of the BOI. The BOI, as the lead implementing and coordinating agency of the CARS Program, shall perform the following:
Act upon the recommendation/s of the Inter-Agency Committee on Automotive Industry Development established under Section 5 of this Executive Order;
Oversee the implementation of the CARS Program;
Submit the annual report on the performance of the CARS Program to the Office of the President (OP);
Coordinate automotive industry development efforts of all concerned agencies and instrumentalities of the government; and
Perform such other acts, as may be necessary or incidental to the exercise of its function and powers and the discharge of its duties under this Order.
SECTION 5. agency Committee on Automotive Industry Development. An agency Committee on Automotive Industry Development, herein referred to as “the Inter-agency Committee,” is hereby created to administer and implement the CARS Program. The Department of Trade and Industry-BOl representative shall act as Chairperson of the Interagency Committee, with members from the following:
Department of Finance (DOF);
Department of Transportation and Communication;
Department of Science and Technology;
National Economic and Development Authority;
The Co-Chairman of the Industry Development Council; and
The Co-Chairman of the National Competitiveness Council.
The BOI shall also act as the Secretariat of the Inter-Agency Committee.
SECTION 7. Criteria for Enrollment of a Model. The criteria for the enrollment of a Model shall be based on, but not limited to, the following:
Track record and Model competitiveness;
New investments in Body Shell Assembly and Large Plastic Parts Assemblies;
Planned volume, as may be determined by BOI, but in no case lower than two hundred thousand (200,000) vehicles over the Model Life up to a maximum of 6 years;
Economic impact of the investment plan for the Model, including impact on the parts manufacturing industry and linkages, jobs generation, and overall consumer welfare;
Overall competitive environment and long-term industry development; and
Compliance with fuel efficiency and emission level standards as may be determined by BOI, which in no case shall be lower than the standards under the Clean Air Act.
SECTION 8. Eligibility and Qualifications of Participants. The participating Car Makers, Parts Makers and Shared Testing Facility Proponent must meet the following qualifications, and such other criteria as may be required by BOI:
Minimum Qualifications for Car Makers:
An internationally-recognized Car Maker/brand owner and/or its authorized in country licensed manufacturer acting jointly with an internationally-recognized carmaker/brand owner;
Proven global track record; and
Existing multinational operations.
Minimum Qualifications for Parts Makers
Endorsed by the PCM to manufacture parts of its enrolled Model;
OEM automotive Parts Maker and/or its authorized in-country licensed manufacturer acting jointly with an internationally-recognized carmaker/brand owner;
Proven track record; and
A member of good standing of the Philippine Parts Maker Association.
Minimum Qualifications for the Shared Testing Facility Proponent Collectively endorsed by the PCMs; and
Proven track record.
SECTION 10. Fiscal Support. The registered Participants may be entitled to two (2) kinds of fiscal support during the enrolled Model Life, up to a maximum of six (6) years, namely: (1) Fixed Investment Support (FIS); and (2) Production Volume Incentive (PVI); Provided, that the Participants satisfy the following qualifications:
New investments in the manufacture of Parts and/or establishment of Shared Testing Facility;
Delivery of Parts to the PCM within the prescribed period as stipulated by the BOI;
Introduction of the enrolled Model to the market using the Parts manufactured under this CARS Program;
Consistently meeting the criteria for enrollment of PCMs; and
Attainment of other conditions that the BOI has imposed at the time of registration.
Criteria to be Eligible to PVI
Manufacture of at least fifty percent (50%) of the assembly by weight in the case of Body Shell Assembly;
Manufacture of major components of the assemblies in the case of Large Plastic Parts Assemblies;
Exceeds one hundred thousand (100,000) units in production volume; and
Attainment of other conditions that the BOI has imposed at the time of registration.
This fiscal support shall be computed based on the Segment Weighted Average Price, Standard Production Support, and Logistics Efficiency Index, as defined in this Executive Order, during the manufacture of the enrolled Models.
SECTION 11. Establishment of the Automotive Development Fund in the General Appropriations Act. The Department of Budget and Management (DBM), in coordination with the BOI, shall propose, through the National Expenditure Program, the inclusion of an Automotive Development Fund (ADF) in the annual General Appropriations Act (GAA), to fund the fiscal support to be granted to registered and eligible Participants.
The total fiscal support for the CARS Program will be given beginning 2016, and shall not exceed Twenty-Seven Billion Pesos (P27 Billion), with each enrolled Model qualified to a fiscal support in an amount not exceeding Nine Billion Pesos (P9 Billion), to be allocated as follows:
Forty Percent (40%) for FIS, provided that in cases of Parts and Shared Testing Facility, the FIS shall not exceed 40% of the capital expenditure for tooling and equipment to manufacture the parts, including training costs for the initial start-up operation for the use thereof; and
Sixty percent (60%) for PVI. The DBM shall likewise propose that the GAA includes a special provision providing that the use and disbursement of the ADF shall be pursuant to this Executive Order.
SECTION 12. Annual Appropriations. The DBM shall indicate in the annual National Expenditure Program the annual estimated expenditure necessary to support the CARS Program for that year, until the amount of Twenty-Seven Billion Pesos (P27 Billion) is fully utilized and/or the financial obligations to the program Participants are fully paid, subject to DBM policy and guidelines on budget preparation.
SECTION 13. Tax Payment Certificate. The fiscal support for the registered and eligible Participants shall be evidenced by a non-transferrable Tax Payment Certificate (TPC)-as provided by law. This shall be used to defray the tax and duty obligations of the Participants to the National Government, specifically, excise tax, income tax, import duties, and Value Added Tax (VAT).
Towards this end, the BOI, DBM, and DOF shall draft an efficient and effective TPC mechanism.
SECTION 14. No Double Availment of Incentives. Registered Participants shall not be allowed to register their activity under any other program granting incentives.
SECTION 15. Monitoring and Compliance. The production volume, including parts importation volume, among others, deliverables and commitments, shall be subject to periodic audit. Further, parts makers and/or service providers shall be audited to prevent parts trading. Registered Participants shall be audited and strictly monitored.
Failure to meet the following shall cause the cancellation of the Certificate of
Registration and/or forfeiture of support, and/or expulsion from the CARS Program: Investment in the manufacture of Parts and/or establishment of Shared Testing Facility
within two (2) years from the issuance of the Certificate of Registration; and Delivery of Parts to the PCM within the prescribed period.
The Board may limit availment of support as it may deem necessary. Further, failure to comply with any of the provisions of this Executive Order, its Implementing Rules and Regulations, and the terms and conditions of the Certificate of Registration shall be subject to cancellation, suspension, forfeiture of support, fines and such other applicable penalties as may be allowed or prescribed by existing and applicable laws, rules and regulations.
SECTION 16. Implementing Rules and Regulations. The BOI, in coordination with the DOF, DBM and other concerned government agencies shall promulgate the rules and regulations to implement the objectives and provisions of this Executive Order.
SECTION 17. Review of EO 156 and EO 877-A. The Inter-agency Committee constituted under this Executive Order is hereby further ordered to review the existing Motor Vehicle Development Program and other relevant incentive schemes in the light of the implementation of the CARS program and recent regional and global economic developments. The review, which should be completed within six (6) months from the issuance of this EO, may, among others, explore the possibility of providing for new entrants intending to eventually participate in the CARS program a set of incentives during a limited transition period.
SECTION 18. Repealing Clause. All executive orders, rules and regulations and other issuances or parts thereof, which are inconsistent with this Executive Order, are hereby revoked, amended, or modified accordingly.
SECTION 19. Separability Clause. If any provision of this Executive Order is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting.
SECTION 20. Affectivity. This Executive Order shall take effect immediately upon its publication in a newspaper of general circulation.
Effect of Regulations in Industry
The effect of the Comprehensive Automotive Resurgence Strategy or the CARS Program is significant to the economy of the Philippines, Signed by President Benigno S. Aquino III on the 29th of May 2015, in order to attract new investments, stimulate demand and effectively implement industry regulations that will revitalize the Philippine automotive industry
Investments is the coordinating agency of the CARS Program and they are limited to manufacture three models of four-wheeled motor vehicles and a minimum of manufacturing 200,000 vehicles with a lifespan of up to a maximum of 6 years. The Philippines is hoping to replicate the success of Thailand in developing its auto industry. The CARS Program is also expected to create 200,000 direct and indirect jobs in the next 6 years.
Regulations and rulings made by the government may also affect the supply of the automotive industry. It is mentioned in Toyota’s report on risk factors (2011) that the laws and regulations made by the government heavily affect the industry. Industries are required to find a way follow the vehicle safety, minimum emission levels, and noise levels set by the government while still being able to keep the price down for the consumers. Other regulations that affect the industry are laws that affect raw materials such as mining ban. M. Ramesh (2011) mentions in an article that the automotive industry fears shortage of raw materials due to government in Karnataka issuing a mining ban. The article mentions that three different manufacturers use material from that mine in order to produce cylinder blocks and heads that make up automobile engines.
Corresponding Government Agencies Affecting the Industry Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI)
CAMPI actively participates in the production of government policies, regulations and standards for the automotive industry.
Department of Finance (DOF)
The DOF are contributing to the expansion of the automotive industry towards the manufacturing sector, DOF are responsible for funding 27 billion pesos worth of tax incentives for the major players in the Philippines over the next 6 years.
Land Transportation Office (LTO)
Inspection and Registration of Motor Vehicles Issuance of Licenses and Permits
Enforcement of Land Transportation Rules and Regulations
