Ford Philippines Closes Shop on BS Aquino’s Hacienda Economics

All of the chuwariwap cheerleading of BS Aquino about improved sovereign credit ratings, higher GDP growth, higher government spending, corona impeachment, “it’s more fun in the Philippines” , “Philippines ready for business”, news about the forty richest Filipinos, passing more laws on transparency – HAS NOT CONVINCED FORD PHILIPPINES TO REMAIN OPEN because in the words of Ford Philippines – “we could not make a strong enough business case for future manufacturing”.

FORD PHILIPPINES RIDES INTO THE SUNSET OF BS AQUINO’S HACIENDA ECONOMY. AND MOVES TO.. THAILAND – WHERE PEOPLE CAN AFFORD CARS AND ELECTRICITY IS SUPERIOR THAN MERALCO’S EXORBITANT ROLLING BROWNOUTS.

Ford to close Philippines assembly plant

June 27 | Wed Jun 27, 2012 8:42am EDT

(Reuters) – Ford Motor Co said on Wednesday it will close its assembly plant in the Philippines later this year as part of a restructuring in the region.

The decision to close the plant in Santa Rosa when production of the Escape sport utility vehicle ends was made as part of Ford’s effort to cut costs, the company said. The Philippines market will be served by imports from other plants around the world, mostly from Thailand.

“The company studied every possible scenario and opportunity, but we could not make a strong enough business case for future manufacturing,” Randy Krieger, Ford Group Philippines president, said in a statement.

The plant, in which Ford has invested about $270 million since it opened in 1998, can build 36,000 vehicles annually and employs 250 people. Some of the affected employees will shift to sales and marketing in the Philippines, or to other plants in the region.

Ford is currently the only volume exporter of vehicles from the Philippines and has exported more than 80,000 vehicles with a value of $1 billion to Southeast Asian markets including Thailand, Indonesia and Malaysia. The No. 2 U.S. automaker still plans to double its number of dealers in the Philippines by 2015.

Ford said a separation package, including training and counseling, will be offered to all of the affected employees.

Ford’s exit will have a substantial on the Philippine government’s tax revenue, LGU revenues, the incomes of its employees, and the industries which benefitted from the consumer spending of Ford Philippines and its employees.

It will be interesting how long the BS Aquino and Butch Abad can continue with their bullshit about increased government spending as there are more companies leaving the Philippines, companies who are taxed, companies whose incomes are taken away by the Philippine government in the name of “increased public spending”.

I am not surprised that Ford Philippines has come to the conclusion that it can’t make the case for staying in the Philippines. I’ll wager a couple of cost drivers that have made Ford come to this decision.

1. Very High Cost of Electricity – Only MERALCO and NAPOCOR Make Money

Car manufacturing is an industry which uses electricity greatly. When MERALCO and/or its provincial allies is the only source of electricity in connivance with the Philippine government, it can charge anything it wants to the detriment of electric power consumers. It’s not a secret that the Philippines has one of the highest rates of electricity in Asia.

The country has not had any new power plants constructed – nor has the Philippines opened the economy to allow more foreign majority owned companies to generate, transmit, and distribute electicity.

The high cost of electricity will show up in the sales price of the Ford’s products – which means Ford could price itself out of the market or eat up its profit margin.

2. Low Purchasing Power of Filipinos

The per capita GDP of Filipinos is among the lowest in ASEAN – and fluctuates within the $2000 to $3000 band. It may have been double the country’s per capita income a decade ago, but it remains one of the smallest in Southeast Asia.

While FDI comes in droves to ASEAN – the Philippines remains stuck with only 5% of FDI. The jobs in the Philippines are created by Filipino businesses only. The purchasing capacity of the workforce therefore is stuck to low wages that can ill afford a Ford car which retails for $15000 – and with monthly payments of $250 – or $3000 per year. Spending $3000 per year on a car – in a country where people only make $2000-$3000 per year just does not add up.

If you can’t sell what you manufacture because people have low incomes – AND whatever income they have they have to spend on electricity, water, phones, food, education – which are as exorbitant in relation to their paycheck – you can’t make the case.

3. Higher Purchasing Power of Continental Asia

The open and liberalized economies of the countries in continental Asia have led to a rise in per capita GDP. The dividing line that marks the entry into a a more affluent consumer society gravitates around $5000 per annum currently. The Philippines is still way off that mark.

The Gross Domestic Product per capita in Thailand was last reported at 8553.78 US dollars in 2010, when adjusted by purchasing power parity (PPP), according to a report published by the World Bank.

For short, Thais and its population of 70 million are able to afford $3000 per year car – with more than $5000 to spare – an amount which is more than twice the Philippine GDP per capita.

The geographical proximity to the markets of China, Vietnam, and South Korea also help.

It’s also no secret that Thailand has opened its economy to allow foreign majority owned businesses unlike the Philippines which has the 60/40 constitutional restrictions. The open economies allow a more diverse mix of businesses to flourish and create jobs for Thais.

EAT DUST, PHILIPPINES

In contrast, the Philippines protected economy – limits the jobs to companies owned by Lopez, Sy, Ayala, Cojuangco – and poverty reduction is via CCT subsidy instead of job-creating investments.

The results and outcomes are there for us to see in broad daylight – a BLINDING FLASH OF THE OBVIOUS.

Ford gets stuck in a hole if it stays in the Philippines. Its products become uncompetitive; Its revenue margins get reduced; The rolling blackouts impact its supply chain; The lack of purchasing power of Filipinos; and, the emergence of more affluent markets in continental Asia. And that’s on top of the ridiculous regulations, taxes, political circuses, and corruption in the Philippines.

Ford Philippines is just following what the Filipinos overseas have done – leave the stinking uninspired hacienda economy behind for more dynamic open economies.

Meanwhile, Freddie Aquilar should consider remaking “Ang Bulag, Pipi, at Bingi” as the new National Anthem of the Philippines. And while we are at it – move the capital to Tarlac.

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