Car makers may consider getting more SME suppliers
Business World
December 1, 2016

CAR MAKERS enrolled in the government’s automobile resurgence program said that the inclusion of small- and medium-sized enterprises (SMEs) into their supply chain is still under discussion, noting that the program is still in its infancy.

This comes as the Philippine Parts Maker Association, Inc. said earlier this week that only a “minimal” number of SMEs have been tapped to supply parts to the carmakers under the Comprehensive Automobile Resurgence Strategy (CARS) Program.

In separate interviews, officials from the Toyota Motors Philippines Corp. (TMP) and Mitsubishi Motors Philippines Corp. (MMPC) said that the issue is being discussed, with the latter saying that there is a possibility of hiring more local SMEs in the succeeding tiers of their supply chain.

While the CARS program is meant for three players, it so far registered only two car makers — TMP and MMPC, who are expected to locally produce large volumes of their Vios and Mirage units, respectively.

Asked to confirm if there are already SME firms picked to be Toyota’s parts makers, TMP First Vice-President Rommel R. Gutierrez said that they are still evaluating to see which ones are qualified.

“I cannot confirm because it’s a continuous discussion to see who are qualified. We’re following criteria for the CARS program,” he said in a chance interview on Nov. 28 in the sidelines of the Manufacturing Summit 2016.

Meanwhile, Froilan G. Dytianquin, MMPC first vice-president for marketing, told BusinessWorld that Mitsubishi is still studying the possibility of picking SME firms as Tier 1 suppliers, but noted that SMEs could later come in as Tier 2 and 3 suppliers.

“MMPC aims to enhance parts localization in line with CARS program,” he said in an e-mail interview on Nov. 27, noting that it would be difficult to disclose specific information since the its parts localization program has just began.

“Now MMPC is studying if we can make direct business with SME as Tier 1 supplier under CARS program. Of course, this will be crucial to have global quality, cost, and delivery requirement as Tier 1 supplier. Also MMPC believe that there is a possibility to involve SMEs even as Tier 2 or 3 suppliers under CARS program,” Mr. Dytianquin added.

Tiers point to the level of commercial distance between the supplier and the manufacturer. Tier 1 firms are direct suppliers to a company, while succeeding tiers indicate an indirect relationship that could stretch further along the supply chain.

Established by an executive order under former president Benigno S. C. Aquino III, the CARS program provides incentives to three car makers to locally produce three car models with a production volume of at least 200,000 units for up to six years, or an average of 33,333 vehicles per year.

It gives auto manufacturers and parts makers operating in the Philippines P4.5 billion in annual support for six years, or P27 billion in total, as well as other non-fiscal measures.

MMPC announced earlier this month that it partnered with an initial number of 25 local parts makers to supply around 300 localized car parts in each Mirage car, which the company will produce domestically for the program.

The parts makers, picked to supply various automobile equipment, are mostly affiliated with Japanese companies through joint ventures or technical licensing agreements, if not locally based Japanese firms themselves.

TMP, on the other hand, is yet to release information on its list of parts suppliers.

The Board of Investments (BoI) said that the car makers still have the freedom to choose the parts suppliers they prefer, noting that they cannot force them to pick SMEs.

To address this, Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo said that the government is working with different agencies to upgrade the quality of SME firms.

“We have to upgrade their quality. That’s what we’ll do first,” he said in the sidelines of the Manufacturing Summit 2016 on Nov. 29.

“At the end of the day, we want the Mirage and Vios that are made here to be better than those made in Thailand. We don’t want to ruin that.”□