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July 10, 2020

Toyota, Mitsubishi may miss Philippine production incentive targets

The sharp decline in the Philippine vehicle market this year, due mainly to the COVID-19 pandemic, has put the government’s recently launched Comprehensive Automotive Resurgence Strategy (CARS) under threat, according to a report by the Nikkei Asian Review.

By Olly Wehring

The sharp decline in the Philippine new vehicle market this year, due mainly to the COVID-19 pandemic, has put the government's recently launched Comprehensive Automotive Resurgence Strategy (CARS) under threat, according to a report by the Nikkei Asian Review

The government first introduced the CARS programme in 2016 to help the local automotive industry generate greater economies of scale as competition from its larger neighbours, Indonesia and Thailand, continued to rise.

Under the programme, the government offers tax incentives of up to PHP9bn (US$182m) to vehicle manufacturers that achieve cumulative production volume of at least 200,000 units over a six year period for a specific model. 

The Chamber of Automotive Manufacturers of the Philippines Inc (CAMPI) and the Truck Manufacturers Association (TMA) said their members reported a 51% drop in combined sales to 69,463 units in the first five months of 2020 from 142,185 units a year earlier.

This accounted for about 85% of the country's new vehicle market.

Passenger vehicle sales were down by 55% at 19,201 units in this period.

Only 23,781 vehicles were assembled in the country in this period, down by almost 27% on the 32,484 units produced in the same period last year, according to data compiled by the ASEAN Automotive Federation.

The Nikkei said the only two Japanese vehicle manufacturers to have qualified for the incentives are Toyota, with its Vios compact car, and Mitsubishi with the Mirage small car.

But the sharp decline in vehicle sales and output in the country this year, due in large part to the economic shutdown between March and May to help prevent the spread of the COVID-19 virus, may have put their production targets in jeopardy. 

Toyota and Mitsubishi both returned to normal operations in June, albeit at reduced output because of sharply weaker domestic demand.

Mitsubishi so far has produced only 50,000 Mirages under the programme and will need to reach 200,000 units by February 2023.

For the Vios, the deadline is 2024 and Toyota is more hopeful of meeting its production target.

The Department of Trade and Industry under secretary Ceferino Rodolfo last month told local journalists he was not optimistic that either automaker would be able to achieve their respective production targets, however.

According to the Nikkei, the automakers would still be entitled to a portion of the tax incentives even if cumulative output reaches just 100,000 units.

Margins are very thin in this market on such low production volume and the two companies intend to lobby the Philippine government to take into account the effects of the COVID-19 pandemic and extend their production deadlines.

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