The Philippine automotive industry has faced significant challenges over the years, with some policy decisions leaving lasting impacts on the sector. One such misstep was the government’s decision to impose excise taxes on the AUV (Asian Utility Vehicle) category in the early 2000s. This move abruptly halted the growth of AUV sales, a segment that once showed strong momentum and contributed significantly to the local economy. At its peak, AUVs accounted for nearly 30% of total vehicle sales in the Philippines, with popular models like the Toyota Tamaraw and Mitsubishi L300 dominating the market. These vehicles were not only affordable and practical for Filipino families and businesses but also relied heavily on locally manufactured parts, with up to 60% local content.
Ferdi Raquelsantos, President of the Philippine Parts Maker Association (PPMA), reflected on this critical moment. “The imposition of excise taxes on AUVs was a turning point for the industry, but not in a positive way,” he said. “AUVs had a high percentage of local content, which meant that when their sales dropped, the local auto parts industry suffered as well. This single policy decision disrupted the growth trajectory of both the AUV segment and the local manufacturing ecosystem.” Following the tax imposition, AUV sales plummeted by over 40% within two years, leading to a corresponding decline in demand for locally produced auto parts. This downturn forced many small and medium-sized auto parts manufacturers to scale back operations or shut down entirely, resulting in significant job losses across the sector.
Today, the local auto parts industry remains ailing, and the PPMA is urging the government to implement policies that can revive it. One such policy is the promotion of the PUV Modernization Program, which aims to replace outdated and inefficient public transport vehicles with safer, more environmentally friendly alternatives. Modern PUVs, such as jeepneys and mini-buses, have a high percentage of local content, with estimates suggesting that up to 50% of their components can be sourced domestically. Raquelsantos believes that this program, if properly supported, can serve as a catalyst for the revival of the local auto parts industry.
“Modern PUVs are not just about improving public transportation; they are also about creating opportunities for local manufacturers,” Raquelsantos explained. “By supporting this program, the government can help generate jobs, boost local manufacturing, and reduce our reliance on imported parts.” The PPMA estimates that the PUV Modernization Program could create up to 100,000 new jobs in the auto parts manufacturing sector and generate billions of pesos in economic activity.
Raquelsantos also emphasized the importance of learning from past mistakes and adopting a more strategic approach to supporting the automotive industry. “We cannot afford to repeat the mistakes of the past,” he said. “The excise tax on AUVs was a well-intentioned measure, but it failed to consider the broader implications for the local industry. Moving forward, we need policies that balance revenue generation with the need to nurture and grow our domestic manufacturing capabilities.”
As the Philippines strives to position itself as a competitive player in the global automotive industry, the lessons from the AUV excise tax debacle serve as a stark reminder of the need for careful planning and stakeholder engagement. By promoting initiatives like the PUV Modernization Program and supporting the local auto parts industry, the government can help ensure a brighter future for the sector. “The automotive industry has the potential to be a major driver of economic growth and job creation in the Philippines,” Raquelsantos concluded. “But we need the right policies in place to unlock that potential. Let’s learn from the past and work together to build a stronger, more resilient industry for the future.”
The PPMA remains committed to advocating for the interests of local auto parts manufacturers and looks forward to collaborating with the government and other stakeholders to achieve shared goals.
