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The Inter-industry and Economy-wide Impacts of the Philippine Automotive Manufacturing Industry: The Case of the Relocation of Ford

Philippines Automotives Plant to Thailand

Mira, Jose Romano S.

Dr. Cid L. Terosa School of Economics, Faculty

16 May 2012

The Inter-industry and Economy-wide Impacts of the Philippine Automotive Manufacturing Industry: The Case of the Relocation of Ford Philippines Automotives Plant to Thailand Abstract The automotive manufacturing industry is essential to the industrial growth and development of the Philippines. As part of the global supply chain, the industry is however highly susceptible to external shocks and is also heavily-reliant on top management decisions of MNCs. But these provisions exterior to the players in the industry poses pertinent implications to the firms engaged in the industry. Ford Philippines for example ceased operations for more than a week due to a disruption of the global supply chain in light of the catastrophic tsunami in Japan in 2011. The massive flooding in Thailand months after also did not further bring good news for the global automotive industry. Ford Manufacturing Corporation is the first and only volume exporter of completely built-up units in the country. These events, coupled with other problems in the local manufacturing sector (such as costs relatively higher than our ASEAN neighbors), induced a management decision from the international headquarters of Ford: the relocation of its manufacturing plant in Santa Rosa, Laguna to a more cost-effective site in Thailand. In the middle of these events, the export performance of the industry faces jeopardy. The study seeks to: (1) examine the inter-industry relationships and economy-wide impacts of the automotive manufacturing industry in the Philippines and (2) to further demonstrate the impact of these inter-industry relationships to the economy in the light of the relocation scheme of the Ford automotive manufacturing plant from the Philippines to Thailand. I. Introduction A. Background of the Study For most of the twentieth century, the automotive manufacturing industry has been hailed as the key manufacturing industry and even as the industry of industries.1 Its high potential to accelerate growth may be traced from the strength of its backward and forward linkages. 2 The manufacture of automotives also possesses large multiplier effects that contribute to the thrust of economic growth.3 Our neighbors such as Malaysia and Indonesia have pursued national car development programs out of their hopes in improving their local industries. Thailand on the other hand has taken the strategy of attracting multinational automotive firms to invest in their country to boost industrial development. The Philippine government also sought steps to maximize the potential of the local industry by the implementation of several policies to help the industry. Such schemes included the adoption of local content requirement and protectionist policies for almost thirty years.4 Despite these efforts, the local industry was still held aback by competitiveness problems.5

1 Peter, Dicken. Global Shift: Mapping the Changing Contours of the Economy. 5th ed. London: SAGE Publications Ltd., 2007 2 Maricar Garde, A Policy Brief On the Philippine Automotive Sector: Some Issues On Tariff Reduction and Competitiveness Factors, Universal Access to Competitiveness and Trade (2003): 2,http://203.177.6.3/uactphilippines.org/images/stories/uact/publications/pdf/autmotive_sector.pdf (accessed May 10, 2012). 3 Rafaelita Adalba, A Call For Strategic Governmentindustry Coordination the Autobus Is Leaving...CAn the Philippines Catch It? Policy Notes no. 2 (March 2008): 3-4, http://dirp4.pids.gov.ph/ris/pn/pidspn0802.pdf (accessed May 14, 2012). 4 Julies Vicente, Pacci Presents Auto Manufacturing Roadmap, Manila Bulletin, February 3, 2012.http://www.mb.com.ph/articles/350181/pacci-presents-auto-manufacturing-roadmap (accessed May 12, 2012). 5 Ibid., 4.

Notwithstanding these competitiveness problems, the Philippines have joined the global production chain of the automotive industry. As a matter of fact, the local industry has expressed its hopes of being second to Thailand, as an alternative auto hub in the ASEAN region.6 However, the current status of the industry still seems dissonant from this aspiration. The auto parts industry has been thriving and even generated $3.1B of locally-produced auto parts exports.7 The local manufacture of automotive vehicles however has experienced timid growth from 2006 to 2010 as a share in total sales from 55% to 44% while the share of completely built-up units increased from 18.45% to 27.21% in the same period.8 Dr. Bernardo Villegas even adds that the anticipated increase in demand from the rising Filipino middle-class and a more seamless integration to the ASEAN region might be compensated by the inflow of CBUs from Philippines neighbors but the local manufacturers should seize this opportunity.9 Regarding taking control of the ASEAN automotives market, the Philippines may really be far from maximizing as Dr. Villegas has suggested. Ford Motor Company Philippines is still the first and only volume exporter of completely built-up vehicles in the country as it has been manufacturing the Ford Focus, Ford Escape and Mazda3 for export to ASEAN markets like Thailand, Indonesia, and Malaysia since 2002.10 In 2011, it has suffered two major supply disruptions: the earthquake in Japan and the massive flooding in Thailand. With about 700 employees, Ford closed its Santa Rosa, Laguna plant for almost than a month (from April 13, 2011 to May 9, 2011). 11 Ford Philippines also blamed its weak sales (a drop of 47% or 367 units) in January 2012 relative to January 2011to the massive flooding in Thailand.12 Aside from the losses from these disruptions, Ford Philippines also ails from higher costs operating in the Philippines than in Thailand. The Chief of Ford Philippines, Edward Krieger, reported that the cost of building and shipping out a Focus from the Philippines was $1,500 more expensive than in Thailand.13 Ford announced in the first quarter of 2012 that it will relocate its production of Mazda 3 and begin the production of the new Focus model from its Santa Rosa plant to its new $450M plant in Rayong, Thailand.14 B. Statement of the Problem How will the Philippine economy be affected by the relocation of the Ford automotive manufacturing plant from Santa Rosa, Laguna to Rayong, Thailand?

6 Bernie Cachiles-Magkilat, Rp Eyed as Second Asean Auto Hub, Manila Bulletin, January 3, 2012.http://www.mb.com.ph/node/236697/rp-eyed- (accessed May 8, 2012). 7 Ibid. 8 Ibid. 9 Ibid. 10 Ford Motor Company Philippines Marks 75,000 Export Milestone, Ford Philippines Export Program,http://www.ford.com.ph/about/export-program (accessed May 13, 2012). 11 Ford Philippines Suspends Operations, AFP News, April 13, 2011. http://ph.news.yahoo.com/ford-philippines-suspendsoperations.html (accessed May 15, 2012). 12 Ford Philippines Feels Impact of Thai Flood On Sales, Top Gear Philippines, February 22, 2012.http://www.topgear.com.ph/news/ford-philippines-feels-impact-of-thai-flood-on-sales (accessed May 12, 2012). 13 Likha Cuevas-Miel, Ford Shifts Mazda 3, Focus Production to Thailand After Loss of Tax Perk, Interaksyon, January 31, 2012. http://www.interaksyon.com/article/23347/ford-shifts-mazda-3-focus-production-to-thailand-after-loss-of-taxperk (accessed May 14, 2012). 14 Ibid.

C. Objectives of the Study The researcher seeks: 1. to examine the inter-industry relationships and economy-wide impacts of the automotive manufacturing industry in the Philippines; and 2. to further demonstrate the impact of these inter-industry relationships to the economy in the light of the relocation scheme of the Ford automotive manufacturing plant from the Philippines to Thailand. D. Methodology To substantiate the given objectives of the study, the researcher will analyze the industry through the 2000 input-output table. The researcher derived a 30x30 industry-by-industry inputoutput from the 240x240 input-output table to better manage and analyze the automotive manufacturing industry.15 Input-output analysis fits best the method to answer the objectives of the study since the nature of the study is inter-industrial. The impact analysis from the input-output would provide the economy-wide effect of the research problem while taking into consideration the interindustry relationships in the economy. The industrys structure, linkages and multipliers would also be derived and studied using the input-output analysis. The input-output analysis was developed by Wassily Leontief in the 1930s.16 The inputoutput table consists of an inter-industry transactions matrix composed of the flows of products to be used as inputs or produced as output in terms of monetary units. For the 2000 input-output tables used in the study, the values are expressed in thousands of pesos. But perhaps one of the most essential elements that may be found in the table is the technical coefficient. The technical coefficient is the ratio of the inputs of an industry relative to its output. This assumption is crucial since it implies that there is no substitution between inputs, or else the inter-industry dynamics of input-output matrix will cease to hold. The technical coefficient matrix is a square matrix usually given the notation A. The equation of the basic input-output model is given as: X = (I-A)-1 Y In this basic model, I is an identity square matrix similar to A in dimensions. X is referred to as the output and Y is the input. The matrix pre-multiplied to Y is central to the basic inputoutput analysis. The Leontief Inverse Matrix captures the direct, indirect and even the induced effects of the changes in Y to X. The basic output and household income multipliers as well as the forward and backward linkages are also derived using the Leontief Inverse Matrix. The simple output multiplier for each industry is simply the column sum of the elements in the generated Leontief Inverse Matrix. It shows the total value of production in all industries of the economy in order to satisfy a peso worth of a change in final demand.17 The multiplier may also be interpreted as the incremental effect in all the industries of the economy for every

15 A matrix aggregation scheme was used by the researcher to obtain the 30x30 input-output table from a 240x240 input-output table. 16 Ronald Miller and Peter Blair, Input-Output Analysis: Foundations and Extensions, 2nd ed. (Cabridge: Cambridge University Press, 2009), 28. 17 Ibid., 20.

peso change in the final demand of the industry. But this simple multiplier effect may still be decomposed into its total direct and indirect effects. The direct effects are simply the elements in the technical coefficients matrix. The indirect effects may be computed by subtracting the elements of the Leontief Matrix Inverse to the Identity Matrix. This difference would then be deducted from the direct effects, leaving the indirect effects. The direct effects are the additional output produced in the industry given the changes in final demand while the indirect effects are the secondary additional output produced by another industry or other industries given the change in final demand.18 The backward linkage index for each industry is computed by the share of an industrys output multiplier to the average of all the output multipliers. The forward linkage index of an industry is given by the share of the row sum of the industry to the average of all the output multipliers. The linkage indices illustrate how the industrys linkages fare in comparison with the average simple output multipliers of all the industries in the economy. To demonstrate effects of the industry on other segments of the economy aside from industries, its effect on household income should also be derived. The household income multiplier, however, is taken from the basic input-output model and assumes that: c = CE/X, where c is the household income coefficient, CE is the compensation of employees, and X is the total input. Manipulating the prior equation, we get: CE = cX. Note that: X = (I-A)-1 Y. Upon substitution, we get: CE = (I-A)-1 Y where is a diagonalized matrix of household income coefficients, and (I-A)-1 is the household income generation matrix. We derive the household income multipliers from the household income generation matrix in the same way the basic output multiplier is derived from the Leontief Inverse Matrix. The summation of the column elements of an industry is the additional household income generated per peso worth of output produced in an industry. But more than these multipliers and accounting for the effects of changes in Y relative to X, the basic model may also be manipulated to demonstrate the effects of final demand on the total output of the economy or GDP through differentiation. Differentiating the basic model gives us: X = (I-A)-1 Y
18 Ronald Miller and Peter Blair, Input-Output Analysis: Foundations and Extensions, 280.

and since Y = C + IN + G + E M; then, we can write: X = (I-A)-1 E. This may be defined as the export multiplier. The export multiplier is a type of a final demand multiplier which measures the effect of a change in final demand (household consumption, investment, government expenditure, exports and imports) to the entire economy. This process is also known as the impact analysis. This is accomplished through the premultiplication of the Leontief Inverse Matrix to the final demand column vector or a column vector of its component. The column vector is arranged such that all the elements are zero except for the element corresponding to the change in final demand (or its component) in the industry. This matrix multiplication then results to X or translates to the change in GDP. To account for possible contraction in GDP, an estimation of the total export value in 2010 would be used. The choice of 2010 instead of 2011 lies on the fact that 2011 was not a good year for the industry due to two major disruptions in the global supply chain: the earthquake in Japan and flooding in Thailand. Although 2011 may seem to be the better choice since it is the most recent data available, the aforementioned circumstances made 2011 a rather unique year and unrepresentative of the production and sales patterns of the industry. Since Ford Philippines is the first and only exporter of automotive vehicles from the country, the relocation of its production facility would incur dismal consequences to its export scheme. The application of impact analysis to this scenario then becomes sensible. Hence, we look for: X = (I-A)-1 E This fits well to the case given in the study: the export multiplier. It accounts for the incremental total output generated in the economy given additional exports. Using the impact analysis of a change in exports, the researcher would be able to assess how much is the simulated loss to the Philippine economy19 given the plan to relocate the plant would inhibit exports in the industry. The projected loss in automotive exports from Ford Philippines (as the lone volume exporter of CBUs from the Philippines) to the GDP would then be computed. E. Scope and Limitation For the purposes of the study, the terms (1) automotive manufacturing and (2) manufacture of motor vehicles and parts mean the same and pertain to the aggregation of (1) the manufacture of motor vehicles and (2) the manufacture of motor vehicle parts and accessories. Other similar industries such as the rebuilding and repairing of motor vehicles would be excluded from the study. The characteristics, inter-industry relationships and economy-wide effects pertaining to the automotive manufacturing industry would be discussed through: (1) the general distribution structure, (2) final demand structure, (3) forward linkages, (4) backward linkages, (5) intermediate demand structure, (6) intermediate input structure, (7) total output multipliers, (8)
19 Based on 2010 data.

total direct effects, (9) total indirect effects, (10) household income multipliers and (11) the impact analysis due to a change in exports. The study will be using only the 2000 input-output table for all the analyses concerning the input-output. The researcher will also only use 2010 data outside the input-output table in forecasting or estimating the effects of the relocation scheme of Ford to Thailand.

II. Characteristics of The Automotive Manufacturing Industry A. Industry Profile Prior to discussing the given case, it is best to formally and properly define the automotive manufacturing industry and its contents through the Philippine Standard Industry Classification. a. Philippine Standard Industry Classification The automotive manufacturing industry is composed of two other industries: (1) the manufacture of motor vehicles and (2) the manufacture of parts and accessories of motor vehicles.20 Under the 2009 Philippine Standard Industry Classification, both industries are considered as subclasses under Section C Division 29.21 This means that these industries are manufacturing in nature involved in the production of motor vehicles. These industries are officially listed in the 2009 PSIC under the codes 29100 and 29320 respectively. The manufacture of motor vehicles include: (1) the manufacture of passenger cars, (2) the manufacture of commercial vehicles, (3) the manufacture of chassis fitted with engines, (4) the manufacture of other motor vehicles as well as (5) the motor rebuilding of motor vehicle engines.22 The manufacture of parts and accessories of commercial vehicles include: (1) the manufacture of diverse parts and accessories for motor vehicles such as brakes and radiators, (2) manufacture of parts and accessories of bodies for motor vehicles such as safety belts and doors, (3) manufacture of motor vehicle electrical equipment such as spark plugs and wiring harnesses, and (4) the manufacture of car seats.23 b. Industry Structure and Linkages Using the 2000 Input-Output Tables published by the National Statistical Coordination Board and an aggregation scheme prepared by the researcher, the structure and linkages of the industry may be examined. Since the manufacture of automotives has two components, the researcher sought the analysis of three industries: (1) Manufacture of Automotive Vehicles, (2) Manufacture of Automotive Parts and (3) the aggregation of the two. General Distribution Structure Applying horizontal analysis to the input-output tables, industries may be classified as either a final demand industry or an intermediate demand industry. If the share of the industrys total intermediate demand to its total output is greater than the share of the industrys total final demand to its total output, then the industry is classified as an intermediate demand-driven industry. Otherwise, it is classified as a final demand industry. i.

21 See http://www.nscb.gov.ph/activestats/psic/default.asp 22 Ibid. 23 Ibid.

Under this scheme, both the manufacture of automotive vehicles and the automotive manufacturing industry in general are characterized as final demand industries. This means that these industries have less forward linkages to other industries. The manufacture of automotive parts and accessories on the other hand is characterized as an intermediate demand-driven industry. This means that the auto parts industry has more forward linkages, since its output essentially supplies the inputs of the automotive manufacturing industry.
General Distribution Structure: Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts

Final Demand Industry Intermediate Demand Industry Final Demand Industry

ii.

Final Demand Structure

Applying horizontal analysis of the input-output table, industries may be classified as being driven by: personal consumption, government spending, investment, exports or imports. The share of the highest component to the total final demand determines how demand is driven in the industry. For the manufacture of motor vehicles and the automotive manufacturing industry in general are characterized as capital-intensive industries. This reflects the high capital necessary in sustaining the industry. The manufacture if auto parts however, is described as an importdependent industry. This means that the components needed for thte automotive manufacturing industry is reliant on imports. The inputs of the automotive manufacturing industry are imported and are then assembled domestically. This also implies that the automotive manufacturing industry is part of the global supply chain. Disruptions in the global supply chain reflect a disruption in the domestic production of the automotive manufacturing industry.
Final Demand Structure Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts

Capital-intensive Industry Import-dependent Industry Capital-intensive Industry

iii.

Industry Linkage Indices

The computation of the linkage indices is discussed in the methodology. The forward and backward linkages are the economy multipliers relative to the average of all the economy multipliers of each industry. The automotive manufacturing industry as a whole exhibits relatively strong backward linkages and relatively weak forward linkages. This means that the industry inputs are mostly derived from the output of other industries. Since the automotive manufacturing industry is a final demand industry, it does not significantly supply its output as inputs to other industries.
Backward Linkage Index Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts Rating Strong Strong Strong

1.36 1.17 1.33

Forward Linkage Index Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts

0.64 0.87 0.99

Rating Weak Weak Weak

iv.

Intermediate Demand Structure

Applying horizontal analysis to the output of the industry supplied as inputs to other industries as a share of its total intermediate demand, intermediate demand structure of the industry may be derived. A higher ratio implies a greater utilization of an industrys output as inputs of other industries. The intermediate demand structure reveals that the industry supplies inputs to the manufacture of jeepney, tricycles (motorized and non-motorized) and other road transport next to itself. The intermediate demand structure reveals that the principal destination of the industry is the industry itself, reinforcing the prior finding that the industry is a final demand industry. The concentration of the industry destination to itself also supports the inference that the industry has relatively weak forward linkages. More or less half of the industry destination of the manufacture of automotive vehicles and the automotive manufacturing industry in general are those given industries themselves. The intermediate demand structure of the auto parts industry also reflect that only about one-third of the industrys output is used by the local manufacture of the automotive vehicles. The importation of completely built-up units and other auto parts may also have led to this rate of utilization of local auto parts industry as inputs.
Manufacture of Automative Vehicles Manufacture and assembly of motor vehicles Jeepney, tricycles (motorized and non-motorized) and other road transport Blast furnace and steel making furnace, steel works and rolling mills Manufacture of Automative Parts Manufacture and assembly of motor vehicles Jeepney, tricycles (motorized and non-motorized) and other road transport Repairs of motor vehicles and personal and household goods Manufacture of Automative Vehicles and Parts Manufacture and assembly of automotive vehicles and parts Jeepney, tricycles (motorized and non-motorized) and other road transport Other Manufacturing Ratio 65.43% 22.54% 4.25% Ratio 31.16% 22.33% 6.11% Ratio 43.32% 22.39% 8.66%

Intermediate Input Structure Through the vertical analysis of the industry, the inputs of the industry from the output of other industries as a share of total intermediate input would help determine the intermediate input of the industry. A higher ratio corresponds to a higher utilization of output from other industries as inputs. In comparison with the intermediate demand structure, the intermediate input structure is relatively less concentrated. The previous backward linkage index, it was revealed that the automotive industry has relatively strong backward linkages compared to other industries. The

v.

manufacture of automotive vehicles primarily gets its inputs from (1) the auto parts industry, (2) the industry itself, and (3) manufacture of electrical and industrial machinery. The auto parts industry primarily gets its inputs from wholesale and retail trade. This also supports the fact that the industry is an import-dependent industry. Since the auto parts industry is also intermediate demand-driven, it also uses its inputs from the output of iron and steel foundries, and the manufacture of fabricated metals. The automotive manufacturing industry in general owes it inputs from the output of three industries: (1) the industry itself, (2) wholesale and retail trade, and (3) manufacturing.
Manufacture of Automative Vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of motor vehicles Manufacture of electrical, industrial machinery and apparatus Manufacture of appliances and housewares Wholesale and retail trade Manufacture of Automative Parts Wholesale and retail trade Banking Iron and steel foundries Manufacture of fabricated metal products except machinery and equipment Manufacture of plastic furniture, plastic footwear and other fabricated plastic products Manufacture of Automative Vehicles and Parts Manufacture and assembly of automotive vehicles and parts Wholesale and retail trade Other Manufacturing Manufacture of electrical, industrial machinery and apparatus Manufacture of appliances and housewares Ratio 18.61% 16.24% 12.59% 11.80% 8.70% Ratio 18.89% 15.70% 13.76% 10.70% 8.05% Ratio 28.19% 11.05% 10.17% 9.73% 9.08%

c. Contribution to the Economy The share of the total value of output of the automotive manufacturing industry is 4% of the entire manufacturing sector with Php 133 Million worth of output. The share of the total employment over the total employment in the manufacturing sector only amounts to 1% with 27,763 persons.
Value of Output (2008) Manufacture of Motor Vehicles Manufacture of Parts and Accessories for motor vehicles and their engines Manufacture of Motor Vehicles and Parts Total Employed Persons (2008) Manufacture of Motor Vehicles 4% in Merch. Ex. Php 58,837,734 Php 74,225,845 Php 133,063,579 1% in Merch. Ex. 5064 persons

Manufacture of Parts and Accessories for motor vehicles and their engines Manufacture of Motor Vehicles and Parts

22699 persons 27763 persons

d. Trends in the Industry The industrys revenues rely chiefly on vehicle sales. But the vehicles sold domestically are composed of both imported completely built-up units (CBUs) and units assembled here in the Philippines. CBUs are vehicles that are directly shipped from neighboring countries to the Philippines for distribution. In dealing CBUs, multinational automotive companies simply serve as distributors to local consumers. The local manufacture of automotive vehicles on the other hand utilizes the output of the local auto parts industry as inputs. According to the statistics from the Philippine Automotive Competitiveness Council Inc., car sales generally have been following an upward trend. Although there has been a sharp decrease after the Asian Financial Crisis24, local car sales have been increasing ever since. The domestic production of automotive vehicles seems to mimic this trend. But after 2002, domestic production with respect to total car sales showed a decline. The import of CBUs has also been increasing due to trade liberalization which lifted the ban on CBUs.

Automotive Industry Trends


180000
160000 140000 120000 100000 80000 60000 40000 20000 Total Car Sales Domestic Production Import of CBUs

0 1993 1998
1991 1992 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: PACCI e. Industry Players The top five manufacturers and assemblers of motor vehicles in the Philippines are all Japanese-owned companies: (1) Toyota, (2)Honda, (3) Mitsubishi, (4) Isuzu and (5) Honda. The next to these top five is the American-owned company Ford Motor Company Philippines, which is also the first and only volume exporter of CBUs in the country. The companies that supply the inputs of local car assemblers include: (1) Lear Automotive Services, (2) Temic Automotive

Philippines, (3) EDS Manufacturing, Takata Philippines Corporation and Philippine Auto Components.
Top 10 Manufacturers and Assemblers of Motor Vehicles Toyota Motor Philippines Corporation Honda Cars Philippines, Incorporated Mitsubishi Motors Philippines Corporation Isuzu Philippines Corporation Hyundai Asia Resources Incorporated Ford Motor Company Philippines Incorporated Diamond Motor Corporation CAR & Recreational Vehicles, Corporated PGA Cars Incorporated Norkis Automotive Resources Corporation Top 10 Manufacturers Parts and Accessories of Motor Vehicles and their Engines Lear Automotive Services (Netherlands) B.V. Temic Automotive Philippines Incorporated EDS Manufacturing, Incorporated Takata (Philippines) Corporation Philippine Auto Components, Incorporated Mitsuba Manufacturing Batangas Corporation International Electric Wires Philippines Toyota Autoparts Philippines, Incorporated Imasen Philippine Manufacturing Corporation Asian Transmission Corporation Overall Rank 18 41 82 123 151 157 400 1158 2246 2865 Overall Rank 86 89 132 143 214 231 288 301 327 363 Gross Revenues (2008) 45,087,124 21,200,514 12,757,925 9,705,554 7,797,982 7,559,809 2,854,405 875,635 392,433 283,139 Gross Revenues (2008) 12,438,390 11,878,761 8,951,691 8,320,730 5,357,380 4,892,005 4,053,589 3,827,759 3,615,688 3,220,799

B. Inter-industry and Economy-wide Impacts: Multiplier Effects a. Total Output Multipliers The total output multiplier for the industry is rather large. This means that for every Php 1,000 worth of output produced by the automotive manufacturing industry, there would be an additional output in all industries worth Php 2,540.
Total Output Multipliers Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts 2.61 2.24 2.54

b. Direct and Indirect Effects The industry has greater indirect effects than its direct effects, This means that for every additional Php1000 worth of output, the industry itself would produce Php 720 worth of additional output. Interestingly for the same incremental amount worth of production in the industry all the other industries would produce an additional Php 820.25 This reinforces the strength of the industrys backward linkages. Since the indirect effect outweighs the direct effects, it may be inferred that the industry is influential relative to the other industries since it

can induce an additional output from all the other industries that is even greater than the additional output it can generate from its own industry.
Total Direct Effects Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts Total Indirect Effects Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts 0.86 0.61 0.82 0.75 0.62 0.72

c. Household Income Multipliers The household income multiplier is similar to the total output multiplier in interpretation, although different in units used. As an example for, a Php 1000 worth of output production in the automotive manufacturing industry will generate a Php270 additional household income.
Household Income Multipliers Manufacture and assembly of motor vehicles Manufacture of motor vehicles parts and accessories Manufacture and assembly of automotive vehicles and parts

0.27 0.22

0.26

III. The Case of the Ford Automotives Plant Relocation to Thailand A. Impact to the Economy Using the impact analysis due to a change in exports discussed in the methodology, the projected loss of an estimated annual export value of Php 5,362,795,480 would generate a Php 302,019,630 decrease in GDP.
Simulated Loss of the Ford Motor Company Philippines Estimated Annual Export Value Estimated Contraction in Merchandise Exports Simulated Impact to the Economy Estimated Contraction in GDP Php Php 5,632,795,480 0.26% 302,019,630 0.003%

IV. Conclusions The Philippine automotive manufacturing industry composed of the automotive vehicles manufacturing industry and the auto parts industry truly has an extensive influence over the economy and other industries as well. Through the horizontal analysis, it was the researcher found out that the industry is a final demand industry with strong backward linkages.

The total output multiplier for the entire industry is 2.54 with a total direct effect of 0.72 and a total indirect coefficient of 0.82. This means that for every Php 1,000 additional output produced in the industry, an additional Php 720 worth of Php 2,540 worth output is generated in the industry and an additional Php 820 worth of output is generated from all the other industries in the economy leading to a Php 2540 worth of additional output in the economy. The decomposition of effects illustrate the inter-industrial relationships embedded in the production structure of each industry. Following the same example, an Php 270 would be added to the household income. In the simulation of the removal of Fords (the lone volume exporter of automotive vehicles) export revenues due to the relocation of its manufacturing plant to Thailand, the impact analysis generated a Php 302 Million decrease in GDP.26 Although this would only mean a 0.003% contraction in the GDP, it is still significant in terms of value since the Philippine GDP in 2010 in current prices is more than Php 9 Trillion. Also, the simulated loss was only the effect of the removal of the export capability of a single firm in an industry. Harsher effects to the industry would generate more sinister implications to the economy. The simulation also further proves the strong linkages of the industry to all the other industries, and to the entire economy. These data also affirm that the automotive manufacturing industry should not be neglected due to its high inter-industry linkages as well as economy-wide effects.

26 Based on 2010 data

Bibliography: Adalba, Rafaelita. A Call For Strategic Governmentindustry Coordination the Autobus Is Leaving...CAn the Philippines Catch It? Policy Notes no. 2 (March 2008): 34.http://dirp4.pids.gov.ph/ris/pn/pidspn0802.pdf (accessed May 14, 2012). Ford Motor Company Philippines Marks 75,000 Export Milestone. Ford Philippines Export Program. http://www.ford.com.ph/about/export-program (accessed May 13, 2012). Garde, Maricar. A Policy Brief On the Philippine Automotive Sector: Some Issues On Tariff Reduction and Competitiveness Factors. Universal Access to Competitiveness and Trade (2003): 2.http://203.177.6.3/uactphilippines.org/images/stories/uact/publications/pdf/autmotive_s ector.pdf(accessed May 10, 2012). Miller, Ronald, and Peter Blair. Input-Output Analysis: Foundations and Extensions. 2nd ed. Cabridge: Cambridge University Press, 2009. Peter, Dicken. Global Shift: Mapping the Changing Contours of the Economy. 5th ed. London: SAGE Publications Ltd., 2007.

Annex:
Data for the Loss Simulation (Impacrt Analysis) Accumulated Units Accumulated Export Value Price per Unit 2010 Units Sold in 2010 Export Value in 2010 Average Peso Dollar Rate PH Total Merchandise Exports Contraction in GDP 75000 unts $ 950000000 Php 57139/ unit 9858 units Php5,632,795,480 Php 45.11/ $ 2,160,131,543,010 Php47,885,868,831.97

Source: PACCI, Ford, NSCB