Toyota fall behind in initial year output target to win Philippine fiscal incentive

17, Oct. 2019

Toyota Motor Philippines expands production lines at its plant in Santa Rosa City, Laguna Province in July 2019. (Photo courtesy of Toyota Motor Philippines)
Toyota Motor Philippines expands production lines at its plant in Santa Rosa City, Laguna Province in July 2019. (Photo courtesy of Toyota Motor Philippines)

MANILA, NNA – Toyota Motor Philippines Corp. is struggling to meet production scale requirements to qualify for a government automaker incentive program despite slow recovery in growth in vehicle sales in the Southeast Asian country amid additional taxes on automobiles and traffic jams.

The carmaker’s Philippine unit had assembled 29,000 Vios subcompact sedans, the latest model subject to the government’s tax privilege scheme in the year from July 2018, local unit President Satoru Suzuki told reporters Monday. It had set a goal of 33,000.

The government’s 4-year-old Comprehensive Automotive Resurgence Strategy (CARS) program is aimed at raising investment in local motor vehicle manufacturing and promoting local sourcing of materials for assembly.

Qualifying automakers must produce 200,000 units of their enrolled models over six years from the start of its production. They are also required to manufacture locally the car body shell and major plastic parts such as bumpers, instrument panels, center consoles and door trims.

The government in turn offers about 9 billion pesos ($174 million) for each enrolled model.

Toyota’s application for Vios under the incentive program was approved in 2016. The company says it has until 2024 to comply with the required output. Vios sold 23,401 units in the first nine months of this year, about 70 percent of the annual benchmark, said Vice President Elijah Marcial, who oversees marketing and sales.

In 2018, the Philippine government levied an excise tax for the first time on automobiles under a tax reform program -- as inflation grew. Auto sales across brands in turn dropped to a 7-year low in overall last year.

“We are thinking we need to meet the target market requirement,” Suzuki said. “And at the same time, we feel some risks because of the excise tax increase. It was not expected when we applied.”

Toyota’s local unit has invested 5.38 billion pesos in a plant in Laguna Province near Manila as part of efforts to meet the incentive program’s requirements.

He said the local arm would step up sales promotion strategies and product enhancements such as adding some accessories to the Vios model.

Traffic jams are worsening in the Philippines this year, with many blaming the increasing number of cars on major roads in Metro Manila, especially EDSA, one of primary thoroughfares.

Suzuki said the congestion may also be hampering affect growth in vehicle sales this year.

Toyota Motor Philippines is expanding dealerships outside of the congested capital city metro area to help meet the incentive target, Marcial said.

Sales are growing in central Luzon Island, south of the capital and in the Visayan islands of central Philippines, Marcial said. Company fleets including for taxi operators and major pharmaceuticals are making some of the purchases, she said.