Motorcycle Industry

COMPETITIVENESS ROADMAP

“ P U T T I N G T H E N AT I O N O N M O T O R I Z E D T W O - W H E E L S ”
 Outline of Presentation
2

 Development of the Philippine Automotive Industry

 Global Motorcycle Industry
 Philippine Motorcycle Industry Backgrounder
 Domestic Motorcycle Industry
 Motorcycle Manufacturing Linkages
 Factors that Motivate Growth
 Factors that Dampen Growth
 SWOT / TOWS Analysis
 Strategic Action for Growth
 Development of the Philippine Auto Industry
3

The beginnings of the auto industry can be traced back to the

commercial importation of CBU cars and trucks from 1916 to 1950.

1916
CBU Importation
1950
Import Control Law/ Foreign
Exchange Controls
Progressive Motor
Vehicle Program 1972

1987 MVDP
(MO136, MO157, MO160)
Amended MVDP
(MO346) 1996

2002 New MVDP (EO156)

 Development of the Philippine Auto Industry
4

•Local Content Requirement

Progressive Motor
•Foreign Exchange Requirement
Vehicle Manufacturing
•Prohibition of vehicle importation
Program (1972)

MVDP •Local Content Requirement

(MO136 / Dec. 1, 1987) CDP
(MO 57 / Feb. 9, 1988) CVDP •Foreign Exchange Requirement
(MO160 / Feb. 29, 1988 ) MDP •Prohibition of vehicle importation

Amended MVDP •Termination of Local Content and FOREX

(MO346 / Feb. 26, 1996) Requirements based on GATT-WTO TRIMS
•Import liberalization of brand new CBU

New MVDP (EO156) •Phase-out of Local Content and FOREX

(Dec. 12, 2002) requirements under the TRIMS Extension
•Prohibition of used vehicle importation
 Global Motorcycle Production
5

Philippines rank 8th in world’s motorcycle production overtaking Japan and

4th in ASEAN surpassing Malaysia

In thousand
 ASEAN 4 Production 2007 - 2012
PH
TH
17% 6
8%
MY
4%

9,000 ID
71%

8,000

7,000
ASEAN 4 PRODUCTION

6,000

5,000

4,000

3,000

2,000

1,000

-
2007 2008 2009 2010 2011 2012
Indonesia 4,722,521 6,264,265 5,884,021 7,395,390 8,006,293 7,079,991
Malaysia 446,415 536,567 436,430 467,941 498,076 543,088
Philippines 671,588 734,666 756,228 903,722 1,052,566 1,045,915
Thailand 1,646,873 1,907,424 1,634,113 2,024,599 2,043,039 2,606,161

Source: FAMI
 Philippine Motor Vehicle Registration
7

8,000,000 58%
7,000,000 56% 56%
6,000,000 54%
53%
5,000,000 53% 52%
Axis Title

51%
4,000,000 51% 50%
3,000,000 48% 48%
2,000,000 46%
1,000,000 44%
- 42%
2007 2008 2009 2010 2011 2012
TOTAL MV 5,530,052 5,891,272 6,220,433 6,643,627 7,136,986 7,311,572
TOTAL MC 2,647,574 2,982,511 3,200,968 3,500,729 3,760,893 4,120,315
MC Share 48% 51% 51% 53% 53% 56%

Source: LTO
 Historical Domestic Industry Sales

1,200,000 90.00%

85.6% 85.00%
1,000,000 84.2% 83.3%
84.3%
82.7%
81.8% 81.0% 80.00%

% Industry Growth (MDPPA and LTO)

800,000
75.0% 75.00%
UNITS

600,000 72.1% 70.00%

67.0% 65.00%
400,000

60.00%

200,000
55.00%

0 50.00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
LTO New Registrations 343,138 495,400 585,482 605,038 671,588 734,666 756,228 903,663 1,014,1 1,048,2
MDPPA Sales 257,401 409,704 492,883 517,702 549,106 594,989 637,792 753,111 731,095 702,597
Industry % Growth 44.4% 18.2% 3.3% 11.0% 9.4% 2.9% 19.5% 12.2% 3.4%
MDPPA % Share 75.0% 82.7% 84.2% 85.6% 81.8% 81.0% 84.3% 83.3% 72.1% 67.0%
 Economic and Social Contributions

 Compliant to the conditions of the MVDP

 Minimum investment of US$2M. As of 2011, investments of member companies
have reached PhP 3.4B in Paid Up Capital and PhP 6.8B in PPE
 Conveyorized assembly line with painting, welding and testing operation for
mass production Over 95% of sales are assembled CKD parts and components
 Parts Manufacturing
 PDP for local parts. Localization rate (amount based) of member companies is
approximately 15%
 After sales services. Establishment of 600 3S shops and support to phased out
models
 Direct employment of 5,000+ personnel. In addition are employment generated by
several support groups (e.g., dealers, suppliers, service providers) estimated at
30,000
 Contribution to revenue generation (taxes and duties) in 2012 at PhP 2.2 billion
 Contribution to GDP at 0.7%
 Consumer Protection
 Warranty
 Standards compliance on products and environment
 Deference to Intellectual Property Rights
 Outline of Presentation
10

 Development of the Philippine Automotive Industry

 Global Motorcycle Industry
 Philippine Motorcycle Industry Backgrounder
 Domestic Motorcycle Industry
 Motorcycle Manufacturing Linkages
 Factors that Motivate Growth
 Factors that Dampen Growth
 SWOT / TOWS Analysis
 Strategic Action for Growth
 Motorcycle Supply/Value Chain
Universities/Training Industry
Institutions/Research Associations/
Centers Chambers

Logistics/
Foreign/ Shipping
Domestic Firms
Suppliers Raw 2nd 1st
Material OEM
Tier Tier Dealers
Supplier
Logistics/
Shipping
Firms
Core activities Supporting industries Marketing
Arms

Technology/ Equipment Professional/

Suppliers Manufacturing/
Financial Services

ASEAN Domestic After Other

Market Market market Markets

11
 Tiers : MNCs, Large firms
11
 Tier 2 : SMEs
Motorcycle Manufacturing Industry Linkages
a fully-integrated
Iron & Steel automotive
Industry industry that will
impact allied
industries
Foundry Petrochem
Rubber
Forging Sector Industry
Injection/Molding
Metal casting Injection Electrical
Vacuum Forming Others
Tool & Die Molding Industry

Automotive Electrical

Autoparts Producers
Autmomotive Metal

Automotive Rubber

chemical and Allied

Autmotive Plastic
Parts Producers

Parts Producers
Parts Producers

Producers
Consumers Manufacturers

Dealers/
Distributors
12
 Parts Utilization vs Sales
13

Value of Parts vs Sales

7,000,000.00 800.00

123 128
123 128 700.00
6,000,000.00

600.00
Value in ThousandS PhP

5,000,000.00
118
118

Units in Thousands
500.00
4,000,000.00
84
No. of Suppliers 71 84
400.00
No. of Suppliers
70 71
3,000,000.00
300.00

2,000,000.00
200.00

1,000,000.00
100.00

- -
2006 2007 2008 2009 2010 2011
Value of Parts Purchased 2,969,774,839. 3,355,845,629. 3,684,798,610. 4,519,629,628. 5,931,076,826. 5,945,328,345.
Sales 517,705.00 553,143.00 594,989.00 637,792.00 753,111.00 731,130.00

13
 Summary of ASEAN Fiscal Incentives
14

The Philippines Indonesia Malaysia Thailand

CIT Rate

30 percent 30 percent 28 percent 30 percent

Up to 8 year income tax 3 to 8 year income tax

holidays for newly holiday for new pioneer Corporate income tax
Tax Holidays and

registered pioneer enterprises in 22 specific holidays up to 8 years

5 year tax holiday on 70 to
Reductions

projects meeting certain sectors. followed by a further 5 year

conditions.
3-6 year income tax
holidays for non-pioneer
projects, expansion
projects, and for locating
in less developed regions.
100 percent statutory income
Halving of income tax holiday on 50 percent of
(or 10 year holiday for
withholding on dividends to corporate income tax (for
companies of national and
non residents for priority activities and
strategic importance).
companies in economic companies in certain
development zones or in geographical areas.
priority sectors.

Investment allowances for

Tax allowances and

Various tax credits on
domestic breeding stocks
credits
60 to 100 percent of
Doubling of depreciation
qualifying capital
rates for companies in Investment allowance of 25

and genetic materials, as
well as for incremental
export revenue
expenditure.
economic development percent for expenditures on
Accelerated depreciation of
zones or investing in priority infrastructure.
computer, technology, and
sectors
environmental protection
investments.
 Summary of ASEAN Fiscal Incentives
The Philippines
Import Duty and VAT Exemptions
Exemptions from taxes and
duties on imported supplies
and spare parts.
Zero duty on importation of
capital equipment (EO 70 s
2012)
Additional 50 percent
deduction for labor expenses
Others
for 5 years for new projects
above certain ration of capital
equipment to workers.
15
Indonesia
Capital goods are duty and
VAT exempt.
Reduction of import duty on
machinery, spare parts, and
raw materials.
Special duty drawback and
VAT exemption for
companies with export ratio
over 65 percent.
Loss carry-forward extended to
10 years for companies in
companies in economic
development zones or in
priority sectors.
Malaysia Thailand
Duty-free import of raw
material and spare parts for
re-export.
Import duty and sales tax
exemption on machinery and Various import duty reductions
equipment that cannot be for projects located in certain
produced locally. regions.
Sales tax and excise
exemption on locally
purchased machinery and
equipment
Double deduction of various
expenses (such as R&D and
training). Double deduction for utility
Reduced tax rate 0f 3 percent and transportation costs in
for offshore companies in certain regions.
Labuan. Dividend distributions during
Dividend distributions during holidays are tax exempt.
holidays are from income tax
exempt.
 2012 Motorcycle Density
16

Motorcycle taxis – also known in Mindanao as “skylab” and “habal-habal”

Untapped domestic market presents a healthy picture for the industry. Even after
saturation, Filipinos will continue to use motorcycles in various travel needs and livelihood.

Philippines (2012) – 24:1

Indonesia – 4:1 Malaysia – 4:1 Thailand – 4:1 Vietnam – 8:1

 Drivers of Growth
17

Industry

Increasing Inadequate Access to Government

Rising per
urbanization public Favorable incentives
Capita GDP
& migration transport credit terms

Assemblers

Directions of Population & Opportunity

Favorable for brand
principal possession
demographics
brand owners ratio marketing

17
 Influence of Supply-side Factors
Banks and other
Assembly operation New products with new Growing 3S shops and financial institutions
sufficient to sustain features provide wider sales network in rural now offer financing
growth choices for consumers areas schemes

Promotion
Entry of and
Installed Consumer
New distribution
Capacity Finance
Players reach

Expansion plans IPR infringements and Warranty issues for Growing repossession
postponed due to lack of after-sales non compliant rate and delinquent
surge in cheap imports support products accounts

18
Dampeners of Growth

Redundant
government
processes
Under-
Road Safety developed
Issues local parts
sector

Unabated
Technical
IPR
Smuggling
violations
High
production
costs

19
 Redundant
government
processes
Under-
Awareness Road Safety developed
Issues local parts
sector

Review Strengthen
Self-regulate Unabated Quick settlement
Technical
IPR
Smuggling
violations
High
production
Industry costs

Government

20
 Drivers
Industry

Increasing Access to
Inadequate Governmen
Rising per urbanizatio Favorable
public t incentives
Capita GDP n& credit
transport
migration terms

Assemblers

Directions Population
Favorable Opportunit
of principal &
demograph y for brand
ENHANCE

brand possession
ics marketing
owners ratio

+
Influence of Supply-side Factors
Assembly operation New products with new Growing 3S shops
sufficient to sustain features provides and sales network in Banks now offer
growth consumer wider rural areas financing schemes
choices

-
Promotio
Entry of n and
Installed Consumer
New distributi
Capacity Finance
Players on reach
REDUCE

Fly-by-night traders CBU trading vs. KD Warranty issues for Growing

with no assembly assembly non compliant repossession rate
operation opertations products and delinquent
accounts

Dampeners
Road
Safety Redund
High Issues ant
product govern
ion ment
costs process
es
Unabat
Technical
ed IPR
Smuggli
Under- violatio
ng
develop ns
ed local
parts 21
sector
 Factors that Motivate Growth
23

GDP per capita (current US$)

$9.00
8.37
$8.00 8.10

$7.00 6.90 6.90

$6.00 5.89
5.29
$5.00 4.87
Thousands

4.61
4.40
$4.00 4.01 4.11 3.99
3.87 3.84
3.64
$3.00 3.08 2.95
2.64
2.44 2.27
$2.00 2.18 2.17 2.14
1.94 1.81 1.96 1.86 1.93 1.84
1.59 1.68
1.26 1.40 1.22
$1.00 1.05 1.01 1.06
1.02 1.14
1.09 1.20 1.07 1.13
0.77 0.97 0.89 0.84
0.74 0.56 0.64 0.73
0.40 0.42 0.44 0.49
$0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Philippines Vietnam Thailand Indonesia Malaysia

For developing countries, threshold where general preference of people gradually start to shift to 4W
is at 3000USD. Based on forecast, the Philippines is not expected to hit this level until 2019.
 Industry Growth Forecast
2013-2015
24

1,600,000 25.00%

1,400,000
20.00%
1,200,000

1,000,000 15.00%
Units

800,000

Growth Rate %
600,000 10.00%

400,000
5.00%
200,000

- 0.00%
2009 2010 2011 2012 2013 2014 2015
LTO 756,228 903,663 1,014,104 1,048,228 1,132,086 1,245,295 1,369,824
% GR 19% 12% 3% 8% 10% 10%
 Industry SWOT / TOWS Analysis
25

STRENGTHS • Recognized as alternative mode of transport

• MVDP Participants
• Association of established manufacturers
• Strong dealer network
• Low barrier for entry of new players
• Common models marketed among ASEAN members

WEAKNESSES • Lesser attention given to the industry (involvement in policy formulation)

• Underdeveloped local parts manufacturing sector
• Lack of raw materials local manufacturers
• Lack of testing facilities
• Inadequacy/inaccessibility of industry data i.e. importation, production, registered mc per area, accident per causes
• Weak enforcement of government regulations

OPPORTUNITIES • Continuing increase in demand

• Development of supporting industry i.e., die making, precision machining

THREATS • Proliferation of copycat motorcycles and fake parts and components

• Road safety issues affecting MC sales (incorrect implementation of MC lanes, road infrastructures posing risks to MC)
• Complex government procedures i.e., importation, registration
• Inconsistency of ordinances/regulations (local vs national)
• Weak enforcement of government regulations
 Industry SWOT / TOWS Analysis
SWOT
MDPPA ROADMAP
OPPORTUNITIES
• Continuing increase in demand
• Development of supporting industry i.e.,
die making, precision machining
THREAT
• Proliferation of copycat motorcycles and
fake parts and components
• Road safety issues affecting MC sales
(incorrect implementation of MC lanes,
road infrastructures posing risks to MC)
• Complex government procedures i.e.,
importation, registration
• Inconsistency of ordinances/regulations
(local vs national)
• Weak enforcement of government
regulations
STRENGTHS
• Recognized as alternative mode of transport
• MVDP Participants 26
• Association of established manufacturers
• Strong dealer network
• Low barrier for entry of new players
• Common models marketed among ASEAN members
O-S Strategies
• Further strengthening of the program for a new MVDP
responsive to current industry requirements
• Focus on the development of he supporting industry;
• Develop local parts manufacturing sector (both in-
house and outsourced)
S-T Strategies
• Road Safety Advocacies/ Proper consultations and
representation in public fora and policy-making bodies
to protect the welfare of MC sectors
• Execution of MOAs with implementing agencies i.e.,
NCIPR members
• Quality products - DTI to mobilize team to strictly
implement safety standards
• Streamline processes:
• a) administrative - reorganize departments involved in
motor vehicle transactions
• b) technology-based systems - implement effective
seamless on-line processing from importation to
registration
• c) legislation - may needed law to support changes in
policies
• Establish a Road Safety Board within DOTC where all
policies on road safety both national and local shall
emanate
WEAKNESSES
• Lesser attention given to the industry (involvement in
policy formulation)
• Underdeveloped local parts manufacturing sector
• Lack of raw materials local manufacturers
• Lack of testing facilities
• Inadequacy/inaccessibility of industry data i.e.
importation, production, registered mc per area, accident
per causes
• Weak enforcement of government regulations
O-W Strategies
• Motorcycle sector to be well-represented in a
contemplated Automotive Industry Council
• Strengthen local support industries through provision of
suitable and easy-to-implement incentives scheme
• Encourage assemblers to localize engine and engine
parts manufacturing as backbone of the industry
development
T-W Strategies
• All-out campaign with the support of media and private
sector to address the following:
1. IPR issues
2. MC policies (safety, standards, trade and
environment)
3. Streamlining of government processes (anti-red tape)
• Provide access to industry data data i.e. importation,
production, registered mc per area, accident per causes
26
 Strategic Action for Growth
27

ACTION PLAN MEASURES

• Strict monitoring of participants’ compliance to MVDP
Ensure Fair Market Play in the MC commitments
Industry o Compliance with the $2M investment and assembly
facility requirements
o Parts and components manufacturing
o Monthly/Quarterly reportorial requirements
• Strict enforcement of IP Laws
• Registration of products (trademark, patent) with IPO
prior to BOI registration of models
• Reference of models for registration to Japan Patent
Office and China Patent and trademark Office by BOI
through the FTCS/Foreign Trade Posts
• Speedy disposition of IP cases
• Strict border control procedures in coordination with
OEM i.e. technical smuggling and IP infringement

27
 Strategic Action for Growth
28

ACTION PLAN MEASURES

Develop parts manufacturing industry • Incentivize
o Exemption from import duties of raw materials for
parts and components production`

Compliance to ASEAN MRA • Harmonization of technical standards

5 ECE
o R39 – Speed Meter
o R40 – Exhaust Emission (Euro 3)
o R41 – Noise
o R75 – Tires
o R60 – Control and Tell Tales
• Upgrade testing facility capability
o R39
o R 40
o R 41
 Strategic Action for Growth
29

ACTION PLAN MEASURES

Push for simplification of government
procedures
Heap on RS Promotion
• Interconnectivity of concerned government
agencies systems
o Online MC Registration
o Remove CSR and PNP Clearance Requirements
• Efficient implementation of road infrastructures
posing risks to MC
o Designation of at least 2 non-exclusive lanes for
MC IN EDSA and Commonwealth Avenue
o Establishment of MC Rain Shelters
o Strict implementation of Helmet/Headlights On law,
rules and regulations
 “ P U T T I N G T H E N AT I O N O N M O T O R I Z E D T W O - W H E E L S ”

30

M otorcycle Development Program Participants Association, Inc.

www.mdppa-inc.org
sec.gen@mdppa-inc.org