Friday, 6 July 2012

Ford plant closes: so what?

John Mangun
Mangun on Markets

THE headline read, “Ford to close Philippine assembly plant” and immediately the wailing and moaning started. From that point on came thousands of words analyzing the situation; the why did it happen, the how it could have been prevented, and the effects to the Philippines.

The columnists have been racing to their computers to tell stories of gloom and doom, how this is a major economic event for the country. “It’s a message to the world.” “The closing reflects on our investment environment.” “Ford’s departure proves more reforms are needed.”

My reaction was that Ford’s plant closing was long overdue. My second reaction was that I wondered what happened to the Ford executive who made the terrible decision to come back to PHL in 1999 anyway.

What it proves to the world is something that the world has known for 30 years; American automobile companies have less business savvy than your neighborhood sari-sari store operator.

Ford set the Santa Rosa plant to be a major exporter. Since 2002, Ford exported an average of 8,000 cars a year, about the same number as they sold in the Philippines. Big deal. The average auto plant in Southeast Asia assembles 300,000 a year.

A decision to ship high-end assembled cars out of the PHL was ridiculous. Why do you think Thailand and Malaysia are major auto exporters? Because they are more investor-friendly? Because they have a better work force?

No, they have a little thing called Singapore. If you are going to export heavy goods globally, it is always a good idea to locate near the second busiest seaport in the world; not next to a harbor that has been insignificant for the past 300 years, unless of course you do not care about being profitable.

I am willing to bet that Ford received some generous investment incentives in 1999 to set up shop here. They were probably very happy with the PHL investment environment then.

Ford invested $270 million here. Wow. That is about P12 billion. Can I let you in on a little secret? That P12 billion is about two weeks’ worth of spending by the call centers just on employee salaries. PHL’s outsourcing industry pays salaries of about P250 billion each year.

One columnist lamented that perhaps Ford left because the government will not do anything about high electricity costs. Having helped manage a call-center operation with nearly 2,000 employees, power costs are a major part of the budget and still these companies are profitable.

But what about the 250 Ford employees that lost their jobs? I don’t want to be harsh, but the call centers hire that many people every day…before lunch break.

Some of those 250 will go down the road to another factory and be hired, using the experience and skill they gained at Ford. Others, having received severance pay and holding perhaps more cash at any time in their lives, will open that business they never had the opportunity to do before and make more money than they ever could have at Ford. A few will go back to school and learn new skills, say in computers, and build a new career. Knowing how creative and determined Filipinos can be, one might start a business with a new idea, build it up, and in 10 years be listed on the PSE.

The Ford closing did not have anything to do with constitutional reform, political climate, labor policy, or investment environment. It had to do with Ford’s business model not being successful.

Back in the late 1980s, Laguna was dotted with what we called rubber-shoe factories. Now those are all in China. Guess what? PHL survived without them. And when are the experts going to understand PHL can never be a heavy manufacturing nation? For example, if you build steel mills it helps to have abundant iron ore. Of course, that won’t happen since iron ore must be mined.

Farewell Ford. Good luck.

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