Capital Mobility Research Paper Series No 2
By Ecumenical Institute for Labor Education and Research, Inc. (EILER)
The Philippine automotive industry has many links to the global auto assembly and auto parts industry, but for the most part it has been unable to benefit from trade and investment liberalization measures, aimed at developing the industry over the past 60 years. At the same time, as a player at the lower end of the parts supply chain, the industry has often borne the brunt of negative trends in the global industry. The major manufacturers (OEMs) in the global auto industry, after years of unresolved overcapacity problems and heavy debt levels, were particularly vulnerable to the sharp downturn in the global economy in2008-2009. Adding to these problems were a contraction in market demand and rising costs derived from higher energy and raw materials prices, pressures to address climate change issues, and consumer demand for the personalization of motor vehicles. These problems were passed on to the subsidiaries of the OEMs and their parts suppliers, along with an intensification of the trend to transfer more responsibility for R&D and its attendant costs onto the balance sheets of the partners and parts suppliers. Additionally, the Philippine industry, whose only significant comparative advantage among ASEAN producers had been its low labour cost, was made more vulnerable to trends in the international economy by the adoption of the ASEAN Free Trade Agreement (AFTA) and other trade liberalization pacts.
Despite attempts to put place protectionist measures for the automobile industry, the local industry remained weak and underdeveloped, mainly due to limited domestic demand (slow growth in per capita incomes) which resulted in a diseconomy of scale among local producers. While local demand growth remained low, there was little impetus for sizeable domestic investment in the technology and supporting industries needed to make it competitive both at home and abroad. A total of 124 auto firms (both local and foreign) were surveyed and classified based on their supply chain role and ownership. Included in the sample were 14 subsidiaries of Asian auto giants, including Toyota Motor Philippines, Honda Cars Philippines, Mitsubishi Motor Philippines and Isuzu Philippines. There are also companies that only distribute CBUs (completely built-up), assembled outside the country, namely South Korean firm Hyundai Asia Resources, Inc. and Chinese company Kama Trucks. Purposive sampling was used based on official list of automobile firms from government agencies and major industry groups and chambers.
Based on the findings, the local automobile industry carry out low technological production processes and produce low value-added complimentary auto parts. Component specialists and integrators comprise the majority of all the auto firms sampled, with products and services ranging from stamping and, molding to the manufacture of, transmissions, car seats, car seat reclining adjusters, mufflers, brake discs, water pumps, carpets, molded rubber parts and other non-core automotive parts. The nature of underdeveloped production in the automobile industry is defined by foreign investments flowing into the country, which in most cases did not result to technology transfer. Manufacturing activities of existing Asian TNCs in the country have barely expanded while importation of CBUs continues to surge, especially with importation of Chinese automobiles. There had been no new investments to the automobile industry during the past decade, save for the foreign investments on motorcycle production. Should the trend continue, Filipino workers are bound for mass retrenchment and worse flexible labour schemes as companies downsize operations. The final section of the report details a number of recent labour issues, including union busting action and serious health and safety issues in two companies, Toyoto Motor Philippines and domestically owned F-Tech Philippines, which produces parts for Honda and other auto firms.
Please download the file below for the full paper