In April 2005, Henry Co, the president of Ford Philippines, stood beside a beaming President Gloria Macapagal Arroyo as they sent off a silver Ford Escape, the 30,000th vehicle to be exported from the Ford plant in Sta. Rosa, Laguna since it started operation in 1998.     

It is one of the few bright spots in the Philippines’ struggling auto industry.  Despite the introduction of more than a dozen new models in 2005, and the 11% growth in auto sales this year, the industry is still reeling from the unabated inflow of used vehicles.  The industry already lags behinds its ASEAN neighbors and its pace of growth is far below theirs.  Once at the forefront of the development of a national car industry, it has since been overtaken and left by the roadside.

How did the Philippines become stuck in a ditch?  The country’s auto industry has always been a Sisyphus, with its small-displacement engine of demand struggling to move its factories uphill.  The rock weighing it down has been one thing or another, but the usual culprit has been inconsistent government policy.  This prevents automakers from establishing long-term plans that are essential to their success.

In the years after World War II, the Philippines was an attractive venue for foreign investment.   Japanese companies seeking to expand their market penetration established factories in the country, as well as in Thailand, Malaysia, and Indonesia.  There were other notable early successes:  In 1955, Mercedes-Benz established an assembly plant in the Philippines that was the first in the world, outside of Germany, to produce its core E-Class sedan.  In 1972, GM established a jointly owned vehicle and transmission manufacturing operation in the Philippines with two Philippine companies.  In 1979, Isuzu Motors invests in the venture, GM Pilipinas, Inc.

During the kleptocratic regime of Ferdinand Marcos, the foreign investment all but dried up, and indeed most of them shuttered their operations in the country.  Stalwarts such as Toyota and Ford stopped producing and selling cars.  GM Pilipinas’ assembly and transmission plants ceased operation in 1985.

With the restoration of a credible government, and establishment of freer trade policies, the Philippines was back on the map.  Soon, carmakers were establishing new facilities in the region, and the Philippines attracted it share of investment.  In 1992, the Philippines lost a major potential locator when General Motors, despite the country’s generous incentives package, decided to go somewhere else.  Thailand, having already established a strong base of local auto parts manufactures, bagged the deal.

The Asian financial crisis struck in 1997, sending car sales and investment plummeting throughout the region. The contrast is, while its ASEAN neighbors have recovered and surpassed its pre-crisis sales levels, the Philippines has struggled with obsolete policies and damaging political wrangling.

In October 2003, the Arroyo administration rationalized the excise tax law.  Vehicles were taxed by tag price instead of by engine displacement.  This was supposed to cure the curious anomaly in which some 70 per cent of all cars sold in the Philippines escaped the excise tax net because of loopholes under the engine displacement system.

Also in 2003, The ASEAN Free Trade Agreement (AFTA) lowered tariffs to a maximum of 5%, which allowed components and assembled vehicles to be freely traded across the region. 

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