MOTOR VEHICLE PARTS MANUFACTURERS ASSOCIATION of the PHILS.

(MVPMAP)
THE PHILIPPINE UTILITY VEHICLE (PhUV) PROGRAM
January 17, 2007 BACKGROUND: 1. The PhUV Program is not a corporate single-product project. Meaning, any car assembler who wants to participate can have his own version, in much the same way that in the defunct People’s Car, Kia had the Pride, Daihatsu the Charade, Fiat the Uno, Suzuki the Fronte and Honda the entry-level Civic Hatchback. 2. We have not called our project “people’s car” but instead we called it the PhUV because we realized that an AUV, not a car, may be the best vehicle to cater to the needs of the target market. 3. We realize that calling it a “people’s car” is wrong because the PhUV will definitely not be affordable for ordinary Filipino household if they do not have any business to pay for it. 4. The PhUV target market is not the ordinary Filipino household, particularly the masses. It is the entrepreneur and OFWs who can afford an imported used vehicle. 5. The PhUV, first and foremost, is a Filipino vehicle, assembled in the Philippines with a high level of value-added local parts and labor and meant for business and family use. 6. We have conceived of the PhUV as an inspiration, a rallying point for local auto parts manufacturers not to lose heart in the face of what seems to be insurmountable difficulties ahead. Why the need for the PhUV: Through the years, we have witnessed the steady decline of local auto parts manufacturers and currently, most of what is left of our membership are operating at only 40% of their rated plant capacities. There are about 45,000 workers dependent on the local parts industry and its support industries and thus, MVPMAP saw the need to look for a vehicle that will hopefully revive the industry, a move similar to what our Asean neighbors have done – look for a niche and serve it!! We are expecting the Philippine Utility Vehicle (PhUV) Program to do this as we believe it can be the much-needed catalyst to revive our ailing local auto parts industry. Government support needed: Having said this, we are one with Senate President Manny Villar when he said “let’s encourage the automotive companies to develop cars that will use more locally made parts than their imported models”. That

exactly is what we have been telling (no, begging) the car assemblers for the last few years but to no avail. This is where we feel the government could be of help by providing the necessary incentives to the car assemblers, parts makers and even buyers in the PhUV Program. We really need government’s help on this respect and we would greatly appreciate its support, now that we stand on common ground. The PhUV’s target market: However, we think that the 45,000 workers dependent on the local parts manufacturing industry could no longer wait for the economy “to grow by 8% in terms of GDP…… before we can consider producing a people’s car”. The PhUV, which is not even envisioned to be a “people’s car”, is currently the local auto parts manufacturers’ last hope for survival. We feel that we do not necessarily have to target the ordinary Filipino households, particularly the masses who earn P10,000 a month. The target market are the entrepreneurs and OFWs who have businesses that can afford for them a used imported vehicle from Subic. They have the capacity to pay yet can afford only one vehicle – a vehicle they can use for business on weekdays and for family on weekends. The PhUV’s sales target: The sales target we have set for the PhUV is modest – just 30,000 units, about half of the vacuum to be left by the recent Supreme Court decision completely banning used car importation, especially those via Subic or the so-called SUVic, which honestly speaking, may have been imported and subsequently sold under questionable circumstances. The PhUV’s modest sales target of 30,000 units a year almost matches the sales of our top car manufacturer Toyota Motors Phils. which sold 34,188 units as of November 2006 year-to-date. Even if the PhUV achieves only half of its target, this is still comparable to the sales of second placer Honda Cars Phils. which is 12,564 units for the same period. The PhUV’s target price: Even our PhUV target price of about P350,000 is within the price range for that market. The market is there, they have the capacity to pay and if successful, the PhUV could even help the local auto industry break its 100,000-unit annual sales target, an indication that the local auto industry is starting to grow. Having found the niche, all we need to do is serve it. Malaysia’s Proton: Despite its recent business setbacks, we think Malaysia’s National Car Program was a success as it paved the way for Malaysia to break into the world automotive market. With Proton and Perodua as its national cars, it was producing about 546,000 units annually. But more importantly, in the process, it developed a competitive and world-class parts manufacturing industry that is one of the best in the Asean region.

The “China effect”: The slow but steady entry of Chinese-made motorcycles into the country opened wide the local market for motorcycles, widened its client base and somehow, brought down the prices of motorcycles to competitive levels, thus making them more affordable to the masses. Retail financing was readily available, thus the industry continues to grow consistently at 30-40% annually, achieving a critical mass base. This resulted in the much-needed economies of scale for both the assemblers and local parts manufacturers, enabling them to expand their operations, provide stable employment to their workers and even invite foreign investors. MVPMAP is optimistic that this so-called “China effect” will do to the auto industry what it did to the motorcycle industry.

MOTOR VEHICLE PARTS MANUFACTURERS ASSOCIATION OF THE PHILS. (MVPMAP) THE PHILIPPINE UTILITY VEHICLE (PhUV) PROGRAM

Why the need for the PhUV?: • Total LTO 2005 new vehicle registration From local auto industry (CAMPI) • •

173,671 units 97,067 units (55.9%) -----------------From other sources (Subic, backyard, etc) 76,604 units (44.1%) Of the 97,067 units from local auto industry (CAMPI): From CKD 57,700 units (59%) From CBU 39,500 units (41%, very high) Growth of CBU (no local parts & labor): 1998 8,200 units 2005 39,500 units Grew by 481.7% over the last seven years!! Fastest growth: 15,000 in 2003 to 30,400 in 2004 (up 103%) Total local auto industry sales: 2005 97,500 units 2006 99,500 units (up 2% only) Industry sales has remained flat for the last eight years!! Local auto parts manufacturers: 1996 256 companies 2005 173 companies (Down 32.4%) Operating at 40% of rated plant capacities With over 28,000 workers dependent on the local parts industry

What is a PhUV? The PhUV is a brand-new AUV assembled locally from CKD kits, has a high level of local value added parts and labor but is priced like a used imported vehicle. It is designed to carry both people and cargo, thus it is ideal for business use on weekdays and family use on weekends. It is not a “people’s car” but a utility vehicle, an AUV. PhUV target market: The target markets are the Filipino entrepreneurs and OFWs with businesses that can afford them to pay for the vehicle. They have the capacity to pay but can afford only one vehicle – one that could carry both passengers and cargoes, a vehicle they can be used for business on weekdays and for the family on weekends. The PhUV sales target: The sales target we have set for the PhUV is modest – just 30,000 units, about half of the vacuum to be left by the recent Supreme Court decision completely banning used car importation, especially those via Subic or the so-called SUVic. If successful, the PhUV could even help the local auto industry break its 100,000-

unit annual sales target, an indication that the local auto industry is starting to grow. PhUV target price: The PhUV target price of about P350,000 is within the price range for the target market. Timeline: • July to December 2006 – Generating support via media exposure • October 2006 – Product conceptualization • November 2006 – Product design • December 2006 to March 2007 – Prototype development • April 2007 – Product launching Support generated: • Senate: Sens. James Gordon & Mar Roxas • Congress: Rep. John Cua • BOI: Chairman Elmer Hernandez & Director Romy Rosales • Two local auto assemblers (so far) • Media • Entire MVPMAP membership Benchmarking -- What our ASEAN neighbors are doing: THAILAND (The Asean market leader): • Biggest auto assembler and market in the Asean region and the second largest pickup truck market after the USA • Annual production volume: 700,000 units and expected to hit the onemillion mark this year (38% exported) • Niche market: one-ton pickup truck and its various variants • The pickup truck capital of Asia, the Detroit of Asia (pickup trucks 72% of total production) • Government excise tax of only 3% for the pickup truck compared to 30% for cars • Has excise tax incentives for vehicles with energy saving devices (10% instead of 30%) and vehicles running on alternative fuel (20% instead of 30%). • Government pushed for promotion of cheaper and affordable models based on the one-ton pickup • Widespread credit availability

• Government developed an extensive support network of auto parts manufacturers • 700 OEM auto parts suppliers; 1,000 others in supporting industries (2 nd tier); employing over 217,000 workers = strong supply base, no imports • Thailand’s BOI offered investors 8-year tax holiday, duty-free machinery, visa and work permit support and land ownership rights • Government also gave maximum incentives to support activities such as R&D, HRD and design activities that support the auto sector • Thailand Automotive Institute embarked on a $218 Million program to develop five key projects: HRD, auto experts dispatching program, establishment of R&D centers, auto parts testing centers and car-testing tracks, an information technology center and an auto export promotions center. MALAYSIA (Second biggest in Asean): • Has a population of only 24.4 million yet produces 546,000 vehicles per year • Government supports a National Car Program, with Proton and Perodua as its national cars • Government also supports its car parts suppliers with cuts in income tax • Government imposes higher taxes on importation of car parts and created a Mandatory Standards for foreign products • Recently cut tariff for CBU imports from 20% to 5% • However, it also imposed non-tariff barriers on car imports: an importer has to be 70% owned by the government or by Bumiputera and CBU imports are capped at 10% of local production volumes • Imposed Customs Valuation on CBU imports instead of the GATTapproved Valuation method INDONESIA (The AUV King): • World’s 4th largest country by population • Niche market: the AUV • Total production volume: over 500,000 units a year • Has a Taxes & Tariff Liberalization Program that charges CKD kits tariff and taxes over 50% lower than CBU imports. Examples: Sedan cars (25% for CKD, 60% for CBU), SUV & pickup trucks (20% for CKD, 45% for CBU and buses (20% for CKD, 40% for CBU) • Currently developing a mini-sedan industry with engine displacement of 1,500 cc as a way of entering the international market • One of the hottest car markets alongside China and India (the two most populous countries)

• Sales drivers: cheap financing and plenty of new, low-priced models available • There is a noticeable pickup in consumer spending driven by a sharp increase in lending by banks • Strong competition resulting in cost reductions by assemblers • Analysts’ belief: It’s the affordability that has fueled the car boom. VIETNAM (The new kid on the block): • Has taken strong and decisive actions to protect its growing auto industry • Earlier allowed the importation of used vehicles to help spur its growing economy • When local assemblers complained, government immediately imposed higher taxes on importation of used vehicles • Vehicle import tax in the range of from $3,000 to $15,000 per vehicle • Result: Annual production volume has steadily increased to its current level of about 45,000 units per year Critical Success Factors for the PhUV: • An MVDP member who will assemble, market, sell and provide after-sales service, warranty and spare parts • MVPMAP members must sell their parts to match or even be lesser than their imported equivalents • Maintaining a price range of from P350,000 to P400,000 (retail price of a used imported vehicle from Subic) • Achieving a critical mass base and an economy of scale for both assemblers and parts makers • Availability of low-cost retail financing • Extensive sales & distribution network • Government support & incentives for assembler, parts makers and buyers • A successful “Buy Pinoy” marketing program

POSSIBLE PhUV DESIGNS:

WHAT WILL IT BE????

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