A system dynamics study on the liberalization of the car sector of the Philippine automotive industry

• Main Author: Decena, Ma. Jilla Phoebe S.
• Format: text
• Language: English
• Published: Animo Repository 1998
• Subjects: System analysis; Automobile industry and trade; Trade regulation; Systems engineering; Mathematical models; Industrial Engineering; Other Operations Research, Systems Engineering and Industrial Engineering; Structural Materials; Systems Engineering
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/1972
• Institution: De La Salle University

The Philippine Automotive Industry has been experiencing phenomenal growth, policy changes, and entry of new players since 1987 with the implementation of the revised vehicle program. The vehicle program serves as government support that aims to develop car parts manufacturing. Studies have shown that the industry has a high potential for growth. The industry's goal is to sustain its growth and sales performance for the next decade. This research generally studies the behavior of the automotive industry with the elimination of the local content and foreign exchange requirements as a result of liberalization. The study used the principles of System Dynamics (SD) in developing the industry model. A simulation of the system behavior was constructed using the Dynamo Software. The SD model limited the scope of study to the passenger car category which is under the Car Development Program (CDP) of the motor vehicle development program. The model focused on the interaction between the car category and the local car parts manufacturers. The time period covered by the study was from 1987, when the revised motor vehicle was first implemented, to 2004, when liberalization policies would be lifted. The simulation results showed that the elimination of the local content and foreign exchange requirements would bring about an increase in the number of investors, however, changes in these policies would lower the level of the following variables: production rate, car parts employment, export of parts, and the number of car parts manufacturers. Furthermore, sharp increase in car prices and production cost would also be experienced. Sensitivity analysis showed the functions of the policies on local content and foreign exchange requirements in the Philippine Automotive Industry. The local content requirement is generally responsible for keeping cost and car prices at a lower level. On the other hand, the foreign exchange requirement is geared towards the development of the local parts industry which showed an increase in production rate, employment rate, exports of parts, and the number of car parts manufacturers. Sensitivity analysis also revealed that car sales performance is not dependent on the policies on local content and foreign exchange requirements. Furthermore, sensitivity analysis indicated that sales is highly related to the conditions of the Philippine economy. The model could be improved by simplifying the presentation of the relationships among the following local parts manufacturers and car assemblers variables with the employment. Other suggested alterations include the treatment of the buying population as a level rather than as a parameter. The study also recommends studies on other policies affected by the liberalization such as tariff rates and excise taxes.