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 173,671 units

From local auto industry (CAMPI) 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 one-million
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 GATT-approved
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????

Find out the answer. We can present it to you at any time of your
convenience!!