I had lunch with George Clooney today. Okay, to be precise, I had lunch with somebody who reminded me of Clooney's character in Up In The Air, in which the American actor played the role of an itinerant man whose job is to sit down with redundant employees and be the one to tell them the very bad news that they're about to lose their jobs.
That somebody was Ford ASEAN president Peter Fleet, who somberly told a round table of journalists that Ford Group Philippines is ceasing its manufacturing operations by the end of the year. "A business decision" was how Fleet described the latest development, stressing that the move didn't have a political angle to it. The executive even maintained that, on the contrary, Ford is happy with its relations with the Philippine government.
"About 250 workers" will be directly impacted by Ford's decision to close down its manufacturing facility in Santa Rosa, Laguna. When informed of the news earlier today, the workers were "very respectful and very professional" in their reaction, said Fleet, who also revealed that the most skilled among the soon-to-be-displaced FGP employees will be offered opportunities to be transferred to the carmaker's existing manufacturing plants overseas.
Currently, the first-generation Escape remains to be the only Ford or Mazda vehicle being assembled at the Santa Rosa factory. By the time the last Escape unit rolls off the assembly line, FGP will have produced a total of 126,000 units dating back to 1999--of which 80,000 units were exported to neighboring ASEAN markets. Among the vehicles manually (and very skillfully, if I may add) put together here through the years were Ford's Lynx, Ranger and Focus, as well as Mazda's Tribute and 3. The facility also once churned out "flexible-fuel engines."
It should be noted that the models that FGP's plant has been producing of late are what they call "legacy models," which I suspect is euphemism for "really old models that are being maintained just for the heck of it"--old models that FGP was probably producing at a loss, just so the company could keep the work force employed.
But everything must come to an end. The production of the old Mazda 3 was stopped in January this year, obviously to give way to the arrival of the new model. The manufacture of the old Focus was halted just this month, because you and I know that the new-generation model will be launched in July. That left FGP with just the old Escape. Sadly, even this has to be discontinued now that the next-gen version of the compact SUV is scheduled to appear next year.
In all, Ford said it has poured $270 million worth of investments into its 21.4-hectare Philippine base, which is located at Greenfield Automotive Park in Santa Rosa. This includes a 30,000sqm assembly plant that technically has a production capacity of 36,000 units a year, but is unfortunately being run at just 25 percent of its maximum potential, according to FGP president Randy Krieger.
Closing down the plant was FGP's last and ultimately bitter option. Fleet shared that Ford had spent the last 18 months reviewing every possible new Ford product that might be viable for production in the Philippines. For local production to be feasible, two requirements have to be met, he explained. First, the manufactured units have to have 40-percent ASEAN content--meaning that almost half of the parts to be used must be sourced either locally or from another ASEAN country. Second, for a sound business case to be made, a new model needs to be produced at a rate of 30,000 units a year. Not one of these requirements could be satisfied.
One, our local auto industry has a very small supply base, Fleet said. "The Philippine car market is just too small for suppliers to want to invest in the country." Because of this lack of locally based suppliers, Ford will be forced to ship parts from overseas, which will then put the whole thing at an immediate cost disadvantage, the executive pointed out.
Two, there is just no way Ford can possibly produce 30,000 units a year in Santa Rosa--even assuming that the bulk of that figure will be earmarked for export. Our car market is simply too insignificant. "It's nobody's fault," said Fleet. "It is what it is."
When told by one journalist that industry experts were forecasting positive numbers for the Philippine car market in the coming years, Fleet said that Ford had "to make a business decision based on the present reality."
Another journalist brought up the word "shutdown," reminding Fleet that this is already the second time that Ford is "shutting down" its Philippine operations (the company first left the Philippines in 1984, due mainly to political instability at the time). Fleet was quick to correct the misuse of the word. "We are not shutting down this time," he said. "We are only ceasing our manufacturing operation. We will continue to grow our business here. In fact, our national sales company will see the number of our dealerships double by 2015."
"This will have minimal impact on our business," added Krieger. "If you think about it, we have largely been importing for years. Only 10 percent of our units have been assembled here. We're basically just doing what other car distributors in this market are doing."
"If our competitors can continue finding viable ways to manufacture cars here, best of luck to them," Fleet offered.
Now, here comes the tricky part for Ford: softening the PR blow that could stem from the depressing news that some 250 Filipino workers are bound to join the ranks of the unemployed. The overtones were already patent during the press conference. A few of my colleagues kept asking what Ford was planning to offer the affected employees. It was easy to understand why both Fleet and Krieger were visibly discomfited by the discussion.
Allow me to give my take on this episode. The imminent pink slip that FGP will hand to 250 plant workers at the end of the year--while heartbreaking--is not the real issue here. The main issue is our country's inability to keep corporate investors and make things profitable for them. Let's not muddle this with melodramatic discourses on the sorry plight of the plant workers. Ford is a business, not a charitable institution. No carmaker--not even Toyota--can sustain a loss-incurring manufacturing operation just to spruce up its image in the eyes of many by providing employment to a few hundred laborers.
Ford's executives will never admit and verbalize it--they are simply too professional and too politically correct--but a big part of their Philippine plant's closure is the unfavorable business atmosphere prevalent in this country. "Nobody's fault," they will always say. "It is what it is."
Truth is, if only our government had successfully put in place positive measures that encouraged carmakers and suppliers to locate manufacturing facilities here, I wouldn't have spent lunchtime with George Clooney.