Client News
Ford Philippines boosts exports; generates positive trade balance
Oct 03, 2005
Eyes export of locally produced parts worth P23 billion
(Manila, Philippines) – Ford Group Philippines’ (FGP) export program has generated some $380 million since 2002 up to May 2005 from the export of Philippine-made vehicles, reported Henry Co, FGP president, in a presentation at the recent Industry Link 2005 exhibition and conference. Ford is also the only automotive company in the Philippines with a positive trade balance, Co said.
The Ford plant in Sta. Rosa represents a $250-million investment by the Ford Motor Company, and has a production capacity of 36,000 vehicles annually. It currently manufactures Ford and Mazda brands sold locally and exported to the Asia-Pacific market. It employs 1,174 Filipino workers. That number is expected to reach 1,200 by 2006. Sixty-one parts suppliers account for significant indirect employment.
The company’s export success has its routes in unanticipated economic challenges. The auto industry experienced a reversal following the onset of the ASEAN financial crisis in 1997. “When Ford decided to build a plant in Sta. Rosa, Laguna, in 1997, the local auto industry was producing 160,000 units annually, and was projected to grow to 200,000 by 2000,” Co said. “Unfortunately, the ASEAN financial slump brought this level down to 80,000 in 1998.
“Two years later, the plant’s productivity was reduced to just 10 percent of its 36,000-unit capacity. At that point, our ASEAN neighbors were starting to turn around, and we had no other option but to look outside the Philippines,” said Co.
Demand for the plant’s output increased when FGP adopted a smart export competitiveness strategy in 2002. “The fact that the Ford Thailand plant was nearing maximum utilization presented an opportunity for us,” Co said. At the time, the Ford Ranger and Ford Lynx models were being manufactured in both the Philippine and Thailand plants. “There was a duplication of manufacturing, no resource sharing, and very low efficiency,” explained Co.
Ford’s solution: product specialization. “We stopped production of the Ranger in the Philippine plant and outsourced Ranger manufacture to Thailand. In return, the Thailand plant stopped production of the Lynx and outsourced all its Lynx requirements to the Philippine plant,” said Co.
The solution sounded easy in the beginning, but import high duty rates in the two countries initially made the strategy impractical. “This was 2001, and the Finished Vehicle duty rate in Thailand was 15 percent, and 20 percent in the Philippines,” Co recalled. “We decided to submit our proposal under an ASEAN Industrial Cooperation (AICO) scheme, which provided a five percent import duty, both ways,” said Co. The scheme was approved by the Thailand and the Philippine governments the same year — the first time the AICO scheme was applied finished vehicles.
“As a result of this scheme, the Thailand plant was also allowed to produce Everest and the Philippine plant was allowed to produce Escape,” said Co. Now, three years after the export program was adopted, FGP has grown into a regional player exporting Ford Lynx, Ford Escape, Mazda Tribute and Mazda 3 to the Asia-Pacific market. It has also expanded to include export of completely knocked down units to Vietnam.
Business prospects continue to look bright for FGP, as its export market for auto parts expands. “The Philippine plant is presently working with 61 parts makers to produce 1,500 parts. Our annualized purchases are estimated at P2.4 billion. Ford is also set to purchase about P23 billion in local parts for use in products to be manufactured in North America, Europe and Japan,” Co said.