The Ayala Group is expanding its manufacturing business preparing the Philippines as its hub for car exports. Ayala has under its wing four brands, Honda, Volkswagen, Isuzu and KTM.
Arthur Tan, president and chief executive officer of AC Industrial Technology Holdings Inc., said the company starts production next week of KTM branded motorcycles and within the term of President Duterte, four wheeled vehicles for exports.
“We want to prove that the Philippines is a viable manufacturing hub of vehicles, that it can produce and export finished products. We want the Philippines to be the Asean hub for whatever car we will build,” said Tan on the sidelines of a corporate event of Volkswagen Philippines, one of the companies under AC Industrial.
He said AC Industrial is still pursuing plans to produce a four-wheeled vehicle in the Philippines independent of the Comprehensive Automotive Resurgence Strategy (CARS) program.
“We’re still pursuing that, we’re looking at the supply chain… What they will allow us to be able to produce a car and for a partner to come into the country… the key component parts and be able to convince them that producing the car itself makes viable sense to do it within the country.And not just for export but for domestic which is the key component of the motorcycle venture,” said Tan.
Tan hopes the current administration would be much “more forward and long time thinking in partnering with companies like us which are willing to take that step. I’m still very positive that we’ll be able to do it (within the current administration). I feel that will happen. The previous administration, we tried to work strongly in order to bring in that time the Volkswagen and yet we were not successful. This new administration would have a better, much longer perspective.”
The plan has been brought up with partner Volkswagen AG but this had been put on hold.
Klaus Dieter Schadewald, chief operating advisor of Volkswagen Philippines, said the company would have to take into consideration the investment required to do completely knocked-down operations in the Philippines which could go beyond $200 million.
For KTM AG, AC Industrial’s partnership with the fourth largest motorcycle manufacturer KTM Asia Motorcycle Manufacturing Inc., Tan said it would produce 3,000 to 5,000 units this year, ramping it up until it could reach its capacity of 30,000 units per year.
“We have space to double that. We are pleasantly surprised KTM is doing very well locally. We will export more than we will sell,” said Tan. From 50:50, the long-term plan is to export 70 percent of production to China.
To be produced are 200cc to 400cc models, which are bigger than what the market offers at present.
“It is still mass market but (KTM is) a bit more aspirational. We are on track in production,” noted Tan.
Tan said CARS is a great program “if the plan is to be able to further enhance the incumbents,” but it is “very difficult for new players.”
“The hurdle rate, if we are to look historically to how all these carcompanies started in all the different locations globally, they didn’t come up… they didn’t drive through the CARS program,” said Tan, referring to the 200,000 units as minimum hurdle.
He added the government should also create a level playing field in terms of giving lower tariffs for European cars under the planned Philippines-European Union free trade agreement.
“Whatever it is to make a level playing field that the FTA (the Philippines) has accepted from one country and accept from the EU countries. I am not asking them to change anything. Whatever it is, make it a level playing field and let the market decide because it is good for the consumers. The benefit faroutweighs the negative to the public by getting more choices, getting more suppliers and developing more SMEs (small and medium enterprises) in manufacturing,” Tan said.
Volkswagen has asked the government to include in its FTA negotiations with the EU the reduction of tariffs on vehicles imported from EU. Tariffs currently stand at 30 percent.
But the move has been opposed by existing players, such as those which currently enjoy concessions under the Japan-Philippines economic partnership agreement and Asean and its FTAs with dialogue partners.
Before setting up AC Industrial, Ayala Corp.’s sole manufacturing business was electronics, through Integrated Micro-Electronics Inc. (IMI).
Tan is now also the new president and CEO of Volkswagen Philippines effective January 1.
In 2016, AC Industrial was formed to execute Ayala Corp.’s strategy to create an industrial conglomerate which would house its manufacturing and automotive assets. The manufacturing and product development expertise of IMI, which has a growing business in the automotive electronics sector, has been combined with the rapidly developing AC Automotive group. Volkswagen Philippines disclosed 2017 targets to effectively double its 2016 performance to 2,000 units.