VZCZCXRO7414
RR RUEHCHI RUEHDT RUEHHM
DE RUEHML #1853/01 1180313
ZNR UUUUU ZZH
R 280313Z APR 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC 0758
INFO RUCPDOC/USDOC WASHDC
RUEHZS/ASEAN COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 2629
RUEHBJ/AMEMBASSY BEIJING 5712
RUEHUL/AMEMBASSY SEOUL 2275

UNCLAS SECTION 01 OF 03 MANILA 001853 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MTS and EAP/EP 
USDOC FOR 4430 ITA/MAC/ASIA 
 
TAGS: EINV BEXP ETRD RP
SUBJECT: AMBASSADOR VISIT TO FORD AND PG PLANTS AND BRENT 
SCHOOL 
 
REF:  05 MANILA 5922 
 
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Summary 
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¶1.  Ambassador and Emboffs visited the Ford Motor Company 
manufacturing plant, the Procter and Gamble factory, and 
Brent International School during a trip south of Manila on 
April 21.  Ford Philippines' vehicle exports to Southeast 
Asia have earned $571 million since 2002, making it the only 
automobile company here with a positive trade balance.  In 
October 2006, Ford's plant will commence production of a 
flexible fuel engine that uses up to 20% ethanol.  Procter & 
Gamble expressed optimism about the continued growth of its 
consumer product sales, a result of successfully tailoring 
products and marketing to the Philippine consumer.  The 
Brent School is an important community service supporting 
foreign investors and U.S. Embassy families.  End Summary. 
 
------------------------------------ 
Ford Plant Boosts Philippine Exports 
------------------------------------ 
 
¶2.  On April 21, the President of Ford Group Philippines, 
Henry Co, escorted the Ambassador, FCS Counselor, and 
Econoffs on a tour of Ford's 30,000 square meter facility on 
its 42-acre site in Santa Rosa, about 30 miles south of 
Manila.  The Ford plant, built in 1998-99 with an initial 
investment of $200 million, is the company's fourth largest 
in Asia, producing up to 36,000 vehicles a year.  Co noted 
that Ford makes its completely built-up units (CBUs) from 
start to finish in just 12 hours.  The plant produces four 
models - the Focus, the Escape, and two Mazda-brand cars. 
Co said Ford's market share has risen from 4% in 1999 to 9% 
in 2005, but still lags behind Toyota (37%), Mitsubishi 
(13%), and Isuzu and Honda (10% each). 
 
¶3.  Since the plant began exporting in 2002, Ford has sold 
43,000 vehicles to Thailand, Indonesia, Malaysia, and 
Singapore for total export sales of $571 million.  It is the 
only volume exporter of vehicles in the Philippines.  (Note: 
Toyota is the only other local manufacturer of CBUs.)  The 
company's $420 million in total exports of CBUs and parts in 
2005 far exceeded its $191 million in imports, making it the 
only automotive company with a positive trade balance in the 
country.  Co said Ford is also one of the largest buyers of 
Philippine-sourced components among exporters, buying 
several million dollars worth of parts each year to support 
local businesses. 
 
------------------------------ 
New Flex Fuel Engines for Asia 
------------------------------ 
 
¶4.  Much of our discussion with Ford centered on the recent 
launch of its Flexible Fuel Engine Project.  With an 
investment of $20 million, the Ford plant will commence 
commercial production in October of the first engines in 
ASEAN and the second in Asia (after Japan) that will run on 
gasoline blended with up to 20% ethanol.  Ford managers 
anticipate that, at current gas prices, consumers will save 
up to $1 per gallon by using the ethanol blend in comparably 
priced cars.  Besides appealing to economy-minded and eco- 
friendly clientele, Co remarked that the program supports 
U.S. as well as GRP efforts to encourage alternative fuels. 
Ford received a number of financial incentives for building 
its flex-fuel engines in the Philippines, including a zero 
duty on imports of components, a $400 per vehicle export 
credit that Ford will use to "buy down" import duties on its 
Expedition, and lower excise taxes.  Co said the Philippines 
is progressive compared to other Southeast Asian countries 
because it bases its excise tax on auto value rather than 
specifications, making tax avoidance difficult. 
 
¶5.  The Santa Rosa plant employs 1080 non-unionized workers 
it calls "partners."  Ford practices complete disclosure and 
provides financial training so its employees can help 
evaluate company performance and establish production 
targets.  Morale and efficiency at the plant are very high 
because workers see themselves as directly involved in the 
company's success.  At the end of the visit, Ambassador 
spoke to about 400 enthusiastic employees, recognizing 
Ford's dynamic workforce for its manufacturing excellence 
and economic contributions.  She also noted the generosity 
and civic-mindedness of employees, who organize and 
 
MANILA 00001853  002 OF 003 
 
 
participate in community volunteer projects in health and 
the environment. 
 
-------------------------- 
Ford's Business Challenges 
-------------------------- 
 
¶6.  Ford executives identified a number of business 
challenges they face in the Philippines, and the areas of 
potential cooperation with the U.S. Embassy: 
 
--  The Philippines remains one of the smallest car markets 
in ASEAN,  with the lowest tariff protection.  Ford execs 
attributed stagnant domestic car sales to these conditions. 
 
--  The Philippines' parts-support industry remains 
underdeveloped. 
 
--  Continued need to affirm and implement the Supreme Court 
decision authorizing the Subic Customs Agency to enforce 
anti-smuggling laws.  (Note: Imported used cars ostensibly 
brought into the Subic export processing zone to be re- 
worked and re-exported had been easily smuggled into the 
Philippine market because Subic Customs officials 
technically lacked jurisdiction.  End note.) 
 
--  The Philippine and Japanese Governments are completing 
negotiations on a Japan-Philippine Economic Partnership 
Agreement (JPEPA) that would eliminate tariffs on vehicle 
and auto part imports from Japan, placing GM, Ford, and 
European car companies at a disadvantage.  Ford successfully 
lobbied to push back the tariff reduction until 2013, giving 
the automobile industry time to adjust.  (Note:  This 
represents an additional three years beyond the 2010 date in 
the draft agreement under discussion several months ago 
(reftel), to Ford's significant advantage.  End note.)  Ford 
still seeks assurances of responsible implementation of the 
agreement to ensure protection of its business interests. 
 
-- A proposed alternative fuels bill may mandate a 5% 
ethanol mixture in gasoline, but the Philippines has no 
ethanol refineries or gas stations.  Co hopes that the 
market will overcome this "chicken and egg" problem by the 
time Ford's flexible fuel cars hit the streets. 
 
------------------------------------ 
Procter and Gamble - Major Asian Hub 
------------------------------------ 
 
¶7.  Procter and Gamble (P&G) Finance Manager Jesse Teo 
briefed the Ambassador on the company's history and 
operations at its nearby plant in Cabuyao.  P&G traces its 
manufacturing roots in the Philippines back to 1935 when its 
Manila purchase became the first P&G plant in Asia.  In 
2005, P&G pledged to invest another $30 million in its 
current facility making it a manufacturing and service hub 
for Asia.  The integrated plant manufactures detergent, 
soaps, diapers, dishwashing liquid, and paper products.  It 
is a local market leader in these consumer categories. 
 
¶8.  P&G has reaped the benefits of a carefully tailored 
marketing strategy for the Philippines by targeting low 
income households and offering single-use ("sachet") packets 
of product.  The small quantity makes the product affordable 
for consumers on a tight budget who do not have the 
disposable income to buy in bulk.  The product line also 
makes adjustments for local culture and infrastructure.  For 
example, P&G manufactures a bar soap to rub on clothing in 
support of this traditional method of pre-treating laundry. 
In addition, Tide detergent is tweaked for efficiency in the 
country's hard water conditions.  P&G directly employs 1000 
workers and sub-contracts an additional 2000 workers.  The 
company sponsors a program to build housing for impoverished 
Filipino families in the area, with employees assisting in 
the construction.  In 2005, the company built 70 homes to 
mark its 70-year anniversary in the Philippines. 
 
¶9.  Although P&G's paper and cleaning products are doing 
well in the local economy, some items such as Pringles chips 
are too expensive for Filipino consumers.  The company 
executives acknowledge that snack foods are not a core 
product in the Philippines or in P&G's global market.  In 
October 2005, P&G completed a merger with the Gillette 
Company and will begin incorporating razors and batteries 
into its diverse product line. 
 
 
MANILA 00001853  003 OF 003 
 
 
--------------------------------------------- -- 
Brent International -- an Embassy School Option 
--------------------------------------------- -- 
 
¶10.  Ambassador toured Brent International School Manila 
with administrators and the School Board Chairman.  Most 
U.S. Mission employees send their children to the 
International School of Manila with its close proximity to 
the housing pool, but 29 U.S. Embassy dependents attend the 
five-year old Brent campus.  Koreans are the largest 
nationality at the school, followed by Filipino, American 
and Japanese students.  The administrators attributed the 
growing population of Korean students to high quality 
instruction in English and strong cohesion and values in the 
community.  Brent's student population has increased 
recently to near capacity because of the growing number of 
expatriates and Philippine families returning from overseas 
living in the south Manila exurbs.  Despite the growing 
number of students, the administration remains dedicated to 
individual attention; small classes remain the standard. 
The School Board, which includes an Embassy representative, 
prides itself on running "like a business" and moves quickly 
to deliberate and act on issues that could affect 
admissions.  The American Chamber of Commerce of the 
Philippines notes that the availability of international 
schooling options, such as Brent, is an important factor for 
foreign investors relocating to the Philippines. 
 
KENNEY