The closure of the assembly operations in the Philippines of Japanese automobile giant of Honda Motor Co. Ltd. brings to the surface the need to provide tariff protection on locally-manufactured vehicles to offset the uncompetitive cost of production in the country.
Honda Cars Philippines Inc. (HCPI) which is owned 74.2 percent by Honda Motor Japan on Saturday announced it will stop production operations in Sta. Rosa, Laguna next month March after thorough consideration of efficient allocation and distribution of resources and “optimization efforts in the production operations in Asia and Oceania region. “
The closure will lay off 387 workers and will affect 47 parts suppliers in their value chain.
Ramon Lopez, secretary of the Department of Trade and Industry (DTI) said he will meet with officials of HCPI today, February 24, for the company to consider other alternatives or options so as to minimize the impact of any final decision they will make.
“They may be facing challenges in keeping the cost competitiveness of their local assembly operations. The cost structure of their local car assembly… is basically challenged and there’s no tariff protection, thus making imports of vehicles as a cheaper alternative,” Lopez said.
He acknowledged that vehicle imports have been growing, causing injury to local industry, from assembly to the local parts supply network in the country.
“We really have to study the need to impose safeguard duty and other measures to provide at least a level of support to the local assemblers,” Lopez said.
The three major assemblers in the country include Toyota Motor Philippines Corp., Mitsubishi Motor Philippines Corp. (MMPC) and Isuzu Philippines Corp.
Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) echoed stressed the need for incentives to maintain the viability of those which have stayed to continue local production.
HCPI is a long-time member of Campi.
“(The closure of HCPI’s assembly operations) highlights the importance of continued government support to local production of vehicles and parts and components,” Gutierrez said.
He said at this critical stage, the” government must seriously study any initiatives that will disincentivize domestic auto assembly operation as this will further endanger employment and existing investments, among others,” Gutierrez said.
The Campi head noted the importance of consistent government policy in maintaining investors confidence.
“The remaining local vehicle manufacturers/assemblers need incentives and strong government support and assistance to maintain the viability of their local production and stay competitive in the region,” Gutierrez said.
The DTI has initiated an investigation on the possible imposition of safeguard duties on motor vehicles imported as completely built-up (CBU) on the petition of the Philippine Metal Workers Alliance which claimed a causal link between the increased imports to the injury or threat of to the industry as well as to the workers.
HCPI spokesman Louie Soriano said the 387 workers to be laid off in the assembly plant will “receive a (separation) package better than what the law provides” and will be given assistance in this difficult transition.” HCPI has about 650 associates.
The closure will also impact on 47 parts suppliers, excluding those that indirectly supply to the production of these parts, according to Ferdi Raquelsantos, president of the Philippine Parts Makers Association.
Raquelsantos said some of the parts HCPI sources locally include wire harness, air conditioner, seat assembly, tires, mag wheels, glass carpets, trims etc.
Soriano said parts suppliers to these have been informed ahead of the planned closure. HCPI has achieved a 28 percent parts localization.
At the time of the announcement of closure, HCPI was producing the City subcompact car and the BR-V sport utility, at 400 and 300 units per month, respectively. The BR-V was localized only last year.
Total output in 2019 stood at 7,000 units but sales totaled 20,338 units.
Bart Galang, union president of the supervisory union at HCPI, said they have yet to meet management on the closure.
According to Soriano, Honda assembly operations for City and BR-V for the Philippines will shift to countries in the region where there is higher production volume. These countries include Thailand, Indonesia and India.
“The cost of production (here) versus neighboring countries is not competitive,” Soriano said.
HCPI in the statement said it will continue its automobile sales and after-sales service operation in the Philippines, through the utilization of Honda’s Asia and Oceania regional network.
HCPI was established in 1990 but production started in 1992. Local firms Ayala-owned AC Industrials and Rizal Commercial Banking Corp. each own 12.9 percent of the company.
This is not the first setback experienced by the HCPI in the country.
In 2012, it discontinued assembly of its popular sedan, the Civic, saying it was no longer competitive to produce it here
Civic production was relocated to Thailand, its key production hub in Asia.
The tariff elimination in Asean has prompted motor vehicle assemblers to realign production in the region, focusing on countries with economies of scale.
This is the latest in a string of restructuring of assemblers in the country.
IPC, also partly owned by AC Industrials, in July 2019 discontinued the assembly of the D-Max pick up.
MMPC in April 2018 stopped the production of the Adventure.
But Malacanang downplayed the impact of the closure confident that there would be other companies that would continue to invest in the country.
“The impact is just minimal. There are many companies that are coming in),” Chief Presidential Legal Council and concurrent presidential spokesman Salvador Panelo said in a radio interview.
Panelo said workers who would be affected by the shutdown could still find work in the country including the ongoing projects under the “Build, Build, Build” program of government.
