Isuzu to halt the production of D-Max in the Philippines

MANILA: When a vehicle is manufactured or assembled in our country, the process brings with it a number of benefits, both for the people and government. Job opportunities, economic growth, an example for other manufacturers, and many more positives. However, the manufacturer certainly does not count only the benefits we get. It calculates the costs above everything else and takes the decision based on how feasible it is to continue the production of its vehicle here.

Isuzu Philippines Corporation (IPC) will be shutting down the production of the pickup truck D-Max in the Philippines as the process isn’t feasible enough for the manufacturer anymore. Let’s have a look at some of the major factors which led IPC to take this decision.

Catering customer needs with the CKD process is difficult

When TRAIN introduced the tax reform law, the prices of both cars and pickup trucks saw a dip. In turn, the customers started showing more interest in the later. However, the diversion in interest did not help the manufacturers much. As people were now purchasing pickups as lifestyle vehicles rather than commercial vehicles, they began to expect features of passenger cars to be made available in the pickups as well.

This process of adjustment made life a little difficult for Isuzu as the parts were being brought from Thailand as well as from local suppliers. Joseph Bautista, the head of sales at Isuzu said, “Because the D-Max is a CKD, we could not adapt quickly enough. You have to consider suppliers and the lead time for retooling”. He went on to add, “If your market is workhorse, it's easy. But the shift to lifestyle means you have to adjust very fast.”

Local vehicle assembly brings along high overhead costing

In the Philippines, a country that generates electricity using oil, the cost of the resource is high along with the expensive labour. Adding to the costs of the human and mechanical resources, the parts and the raw materials are no cheap commodities in the Philippines. Automakers are forced to import parts at 1% tariff, the AFTA does not cover the raw materials imported by manufacturers for their parts and accessories, however, the only good part is that there are no tariffs on CBUs (Complete Built-up Units) and CKD (complete knock down) units.

All of these extra costs lead to higher prices of the final products. On this, Bautista said, “There was a BOI study that showed that producing a vehicle in the Philippines is about $2000 more expensive than other countries.” $2,000, which is roughly Php 105,457 is a lot of money and the extra costs run down to the customer at the end of the chain.

Thailand, and the economies

It is simple, Thailand has leap labour and a wide array of local parts suppliers. The cost of labour and parts in the Philippines are of no match to Thailand and that is where manufacturers lose the battle. All the major automaker have their production plants in Thailand serving the ASEAN Free Trade Area (AFTA). The cheaper labour and easy availability of parts make Thailand the prefered location for the automakers to set their plants over there.

And this is nothing new, in the past, Ford had closed its production plant at Laguna and the reasons were not different. Addressing the issue, Bautista cited, “In terms of cost, malaki ang diperensiya namin kumpara sa (there's a big difference compared to) Thailand. We cannot compete with their scale.” The inevitable has to happen, and IPC will be halting the D-Max assembly line in the country later this year.