Ford makes 'business decision' to stop manufacturing cars in PH

By Vernon B. Sarne
 

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.

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  • Aloha Milkyway Jun 27 2012 @ 06:04pm
    Sad day for the local motoring industry. I'll miss picking up cars from the plant. I'll never forget the first time I went there. Literally a sea of Ford Focuses
  • ceejhay Jun 27 2012 @ 06:22pm
    who will follow next? toyota?

    even hyundai would get the market share in sales, i doubt if they can think manufacturing here in the philippines feasible.
    • BOOGIECAT Jun 28 2012 @ 06:03pm
      Toyota won't close its plant ever!
      • markdejesus76 Jun 28 2012 @ 07:34pm
        It will if the power supply here don't change.
    • iskwakalogz Jun 29 2012 @ 06:11am
      maybe Honda and Isuzu are next.. if this oligarch government doesnt act properly and effectively and if they continue to go "Daang Matuwid" and "Noynoying" even our precious supply of clean air and water will come from thailand..
      • BOOGIECAT Jun 29 2012 @ 06:21am
        Malabong magsara ang Isuzu at Honda dito.
        • iskwakalogz Jun 29 2012 @ 07:37pm
          Read this please this article bout the new D-Max

          http://www.topgear.com.ph/news/5-facts-you-might-not-know-about-isuzu-s-assembly-plant-in-laguna

          And nag wonder kb kung baket hindi na dito ginagawa ang Honda Civic kagaya dati? leaving only the Honda City in their production line up.. a bit hopeless state of our industrial capability not only in automotive but also in most industries owned by multinational companies like procter n gamble and colgate-palmolive.. kulang nlang sa thailand tayo kumuha ng supply ng fresh water at fresh air
  • mts Jun 27 2012 @ 06:29pm
    They are being too soft on the government. What ever figure your sales are, your Mayor's Permit fee just keeps going up annually, even if you have a negative net income. No considerations. Small business can easily change name to the proprietor. But this is not applicable to large scale businesses.
  • mindkinetic Jun 27 2012 @ 06:46pm
    business decision as i see it. it will be wise for an investor to keep his options open. to maintain a facility of 21.4 hectares where only about 25% is being made use is already a lost cause. aggravated by the fact that sales in the country is insignificant. and it is likewise a bitter truth that the design of the constitution is archaic that it does not harness a viable business atmosphere. charter change should now be a concern , this is to pave way for a more business friendly philippines.
    • GotToRead Jun 27 2012 @ 11:09pm
      yeah, sad for ford, there's nothing worse than their situation. Not producing the units in its full potential (number of units) and a not so good sales in this country the shipments of the materials used in making this cars. I think the government should do some reform about this.
  • jbits Jun 27 2012 @ 07:17pm
    =(
  • car_mac Jun 27 2012 @ 08:16pm
    Why are they only using 25% of their entire plant?
    • maranello_5775 Jun 27 2012 @ 08:28pm
      simply because the demand is too low against the capacity to produce
    • mts Jun 27 2012 @ 08:52pm
      Sir car_mac & Sir maranello_5775: From my point of view, the 25% is the production for Philippine market.

      "So, why not produce vehicles for export?" - We cannot boost production to its maximum potential since it will be costly overall - including shipment.

      "Now, what will they do next?" - They will transfer their plant to Thailand and maximize their production. As they say, sales goes up annually meaning the demand for supply is getting high each year. Hence the expectation of double the numbers of dealership by 2015.

      "So we will be importing Ford vehicles starting 2013, will the price go up?" - Price maybe the same or a little markup maybe. Production costs on Thailand is very cheap as they say.

      Just my two cents. Cheers.
  • isaac3654 Jun 27 2012 @ 09:33pm
    Hmmmm.... kamusta kaya ang planta ng Ford dito sa Sta. Rosa.... It'll be weird seeing a factory w/ no cars outside at all.... :| buti nlng it won't "shut down" but only "cease" to produce. Hayyyz please sana the gov't can support such an industry that once made us the key automobile producer of SEA.
  • the 8th Jun 27 2012 @ 10:03pm
    Too late na ata para sa pinas. Most manufacturers are either already in thailand, indonesia, or vietnam. Palagay ko this is also why sometimes delayed ang introduction ng new cars here especially for brands na may planta dito, kailangan sulitin nila yung investment bago i-retool yung planta for a newer model. Example: mazda3.
  • LOWTOYZ_JOLAN Jun 27 2012 @ 10:15pm
    SANA ilabas nila d2 mga MUSTANGS nila para naman dadami sales nila kahit papano.tsk! or gawin nilang 50% off ang mga cars nila :D
  • GotToRead Jun 27 2012 @ 11:15pm
    I think this is also one of the reasons why even though some units are locally produced, still prices are high. Lack of local suppliers ng mga materials na "high-grade" o pasok sa quality standards. A sad news, indeed. But "it is what it is"
  • ChairmanPineapple Jun 28 2012 @ 01:45am
    This is a wake up call to our government and to the public that our country is not an ideal place for labor , manufacturing and work because of high utility cost, high wage cost, high corruption, high rates of taxes (that you wonder where it goes) but i guess mag noynoying lang ang mga taga gobyerno dahil mga ka-KKK niya ang mga utility companies
  • Restomodz Jun 28 2012 @ 09:33am
    Fasten your belt to Ford vehicle owner, next few years spare parts and maintenance cost will get high. :(
    • robin_micmac Jun 28 2012 @ 03:46pm
      I don't think it will make much difference to future spare parts cost. Parts are mostly imported anyway.The cars were just assembled in Sta Rosa.
  • snoid_zero Jun 28 2012 @ 09:50am
    ALL is WELL...
  • aargh Jun 28 2012 @ 09:58am
    Its sad but its really not feasible to put up a car manufacturing plant here. The market is just too small compared to our neighbors.
  • ying Jun 28 2012 @ 10:24am
    Kawawa naman mga employees. Hilig naman kasi nila humingi ng langit at lupa. Sa Thailand sige lang sila ng sige. Dito masyadong pampered ang mga employees. Hindi naman productive.
    • Romeo Alfa Jun 28 2012 @ 02:37pm
      I wonder, what is your basis in saying this...
    • isaac3654 Jun 30 2012 @ 09:34am
      Tama! Kaya nalipat din mga companies sa ibang bansa. Aside sa pampered, DEMANDA ng DEMANDA ng RAISE, hindi naman kayang sabayin ang production rate ng rival countries, e.g., mas mababa pa sweldo ng Thailand, pero tingnan mo naman production rate.
  • manilamafioso Jun 28 2012 @ 10:59am
    High cost of electricity and high cost of doing business here
  • lanjohn82 Jun 28 2012 @ 11:15am
    man, thailand just kicked our asses on this one again..
  • cryss Jun 28 2012 @ 11:16am
    This is really sad but then again FGP needs to do this. FGP is a business. Why continue when you're on a losing side? They just made a decision that is for the good of the company. Its just sad for us pinoys.
  • authorizedriver Jun 28 2012 @ 12:57pm
    It reflects PNoy's incompetence to help provide a favorable business atmosphere. Well, what do you expect when all the President wants to do is get back at his political foes?
  • raulylanan Jun 28 2012 @ 01:25pm
    Sorry Vernon, I have to disagree with your final point. All the government incentives in the world will not magically allow the average Filipino households to absorb brand new vehicles at the same clip as Thailand and our other neighbors.
    • Vernon B. Sarne
      Vernon B. Sarne Jun 28 2012 @ 01:46pm
      Hi, Raul. That's not an excuse for the government not to provide foreign investors a favorable business environment. That is ALL THE MORE a motivation for our government to improve its policies and regulations--not to mention do something about red tape and under-the-table corruption.
      • raulylanan Jun 28 2012 @ 01:56pm
        Yes, that's the bigger problem really, far beyond just the auto business.
  • ultramagnus Jun 28 2012 @ 01:39pm
    If Ford wasn't F.O.R.D. (Fixed Or Repaired Daily), then they would've had the sales numbers to keep the plant viable. . .
    • willcess Jun 28 2012 @ 03:10pm
      The F.O.R.D acronym is too stone age. The quality of Ford vehicles have improved over the years and we can see the results.
    • warak1422 Jun 28 2012 @ 06:29pm
      pag shure dong
    • 17Sphynx17 Jun 30 2012 @ 11:51am
      Um, what rock have you been living under this past few years?

      They are no longer like that, especially when you take note of the fact that they were the only american manufacturer that was not needing bailout from the US government.

      Their quality was questionable before but the present reality is no longer the same. There are a lot of happy Ford owners, local and abroad so don't just keep bringing up this old "stigma" while not keeping yourself educated on present facts.
  • Fernando Amorsolo Jun 28 2012 @ 04:07pm
    Wow, ULTRAMAGNUS has the most logical answer of all. Nice one!
    -- DO I sound sarcastic? I should have done better.
  • markdejesus76 Jun 28 2012 @ 05:49pm
    Doing business here is too expensive and too costly yet the government doesn't do anything for this concerns. I think they're too busy comforting their voters rather than thinking and moving for the long term benefit of doing the right thing.
  • rdrogel Jun 28 2012 @ 07:30pm
    Striking workers is the reason that the investors move to another country that has cheap labor but no red tape.
  • tidus1203 Jun 28 2012 @ 09:29pm
    And its not limited to cars. Intel has left, FedEx has left, Colgate and Palmolive has left. Those left here are just producing for local consumption. None of the current auto makers who still make cars here EXPORT! Exports are more valuable than local sales cause it brings much needed foreign currency to the local economy!
    • Romeo Alfa Jun 28 2012 @ 10:05pm
      @ Tidus, aside from Toyota, what other car company manufacture cars here in ph?
      • BOOGIECAT Jun 29 2012 @ 06:23am
        Honda,Isuzu,Mitsubishi,Nissan(NMPI and UMC),Great Wall and JMC
  • 16bab16 Jun 28 2012 @ 10:27pm
    hope di gayahin ng toyota tong sitwasyon na ito. Maintain natin na Number 1 ang toyota sa atin para di lumayas sa bayan natin. Maka pilipino ang toyota . Suportahan natin ang produkto ng toyota.
    • td21 Jun 29 2012 @ 08:12pm
      Magsasara rin ang Toyota dito pag naubos na ang stocks nila ng outgoing Vios.
    • Romeo Alfa Jul 02 2012 @ 04:58pm
      with the good performance of the vios as taxis, the demand for for it can probably maintain a viable plant production.
  • asterisk_io Jun 28 2012 @ 10:58pm
    I wouldn't say it is a sad day. maybe it's just unfortunate that Ford and Mazda don't sell as well as Toyota, Honda and Hyundai. I guess everybody knows why.
  • Kim John Jun 29 2012 @ 03:37am
    goodbye ford fiesta!
    • robin_micmac Jun 29 2012 @ 01:20pm
      why goodbye? They only ceased the operation of the plant and not the whole business. And the Fiesta was never built in Sta Rosa
    • Romeo Alfa Jul 02 2012 @ 04:56pm
      ano ba yan? base your conclusions on the right premise. ONLY the Plant will be closed, but the sale and operation will still continue.
  • iskwakalogz Jun 29 2012 @ 06:08am
    hay enough of noynoying! always repelling investors like this.. another story of unemployment and economic instability. so much for "Daang Matuwid" crap!
  • iskwakalogz Jun 29 2012 @ 06:20am
    Kung hindi sana winalanghiya ng ford ang francisco motors bout dun sa mazda issue dati siguro kahit mazda nandito pa ang production
  • The SUV Jun 29 2012 @ 08:15pm
    i bet that chevrolet will gain customers and sales
    • 17Sphynx17 Jun 30 2012 @ 11:48am
      ??? Why? The dealers of Ford did not close, only the local manufacturing arm that produced old models anyway. This is not directly related to any sales or marketing arm of ford philippines nor should it affect other manufacturers.

      I don't get how you can see this affecting sales of Chevrolet.
  • RS500 Jul 01 2012 @ 08:09pm
    ang kulet naman. kala ng ibang posters dito magsasara ang ford sa pinas. meaning wala ng magbebenta ng Ford cars dito sa atin. guys basa muna bago comment :))
  • jbits Jul 01 2012 @ 08:33pm
    @RS500 mas masarap daw kasi mag ko comment kaysa magbasa.... noypi pre.. hehe
  • foolishofficer Jul 03 2012 @ 04:02pm
    Years ago, whoever convinced Ford to build cars in the Philippines over Thailand did a good job. But in the end, the difficult realities of manufacturing cars in the country will catch up. A sad day indeed. And just when Ford models are becoming more exciting region wide. It's CKD business bids goodbye.
  • vk2r Jul 03 2012 @ 10:08pm
    Ford opens $450M manufacturing plant in Thailand. This is the main part of their decision and also the plain simple answer (not any of those two reasons stated). Ford executives simply thinks that Thai are more productive people. Investors are trying to avoid the Filipino culture of crab mentality and highly political pressure.
  • ianmitsulancer Jul 05 2012 @ 10:45am
    I just hope that Ford will do a Gen. Douglas MacArthur by saying: "I SHALL RETURN"...
  • taks55 Aug 11 2012 @ 09:57am
    It is their option, maybe they (Ford) see how bad will be the Philippines economy on the future.
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