Deconstructing PH’s ‘motorization’ age: It’s the economy, and a chaotic mass transport system

By Tessa R. Salazar August 06,2015

Will ‘express buses’ finally solve the traffic problem? EDWIN BACASMAS

There are more pressing reasons why this country has become the new stomping grounds for hundreds of thousands of new metal beasts. Six months down. Six more to go. We’re at a point when analysts can see better what lies ahead for the rest of 2015. And they see wheels, lots and lots of wheels turning.

They’re now almost certain that the Philippine automotive industry will, indeed, hit—or even exceed—the earlier projected 300,000 unit sales for the year. There are reasons, of course, for this trend. The average Filipino’s purchasing power has gone up, and the local economy has gone the same direction. Overseas remittances have stayed healthy, with millions of Pinoys working abroad boosting the local economy by sending in billions of their hard-earned money.

But at the Carmudi press conference held last July 23, the featured guests revealed another reason, albeit one that comes with an alarming caveat: it’s the worsening mass transport situation, especially in the country’s capital region.

The Carmudi report also pointed out that in other emerging markets all over the world where the public transport system and infrastructure improvements do not keep in pace with the burgeoning public demand, a greater incentive is created for people to acquire their own vehicles.

Alberto Suansing, former Land Transportation Office chief and Land Transportation Franchising and Regulatory Board chair, told Inquirer Motoring: “Because of our situation where we don’t have a respectable public transport system in place, Filipinos will purchase their own vehicles right away to move from point A to point B.”

Suansing is now the secretary-general of the Philippine Global Road Safety Partnership.

The number coding scheme being enforced by the Metro Manila Development Authority is also pushing those living in Metro Manila to buy a second car, according to Suansing. “My joke was that it looks like the MMDA is the number one dealer of the car companies because of the number coding scheme.”

Number coding (when the last digit of a car’s license plate determines what day it would not be allowed on Metro Manila streets) was implemented to lessen the volume of private cars on the road, and encourage the motoring public to use mass transport systems or engage in carpooling.

For convenience

Suansing’s observation was also shared by executives of automotive companies in past interviews. Lexus Manila president Daniel Isla told Inquirer Motoring that the lack of a reliable public transport system would be “a factor that would contribute to the continuous growth of the automotive industry. Owning a car has become a necessity for Pinoys for their convenience and safety.”

John Philip Orbeta

John Philip Orbeta

John Philip Orbeta, president of Volkswagen Philippines, echoed this: “The continued unreliability of the mass transport system will fuel the buying public’s desire to have private transport vehicles. Part of the growth of the local automotive industry has been fuelled by the response of more affluent households to buy more cars due to the number coding scheme. Some clients have requested for specific plate endings.”

But let’s not put all the credit on the mass transport system. There is the economy, of course.

The International Monetary Fund recently projected that the GDP growth in emerging markets would be substantially higher than in developed economies within the next five years.

It also revealed a booming economic expansion and growth of the middle class in the Philippines.

As a result, the Philippine automobile industry showed “a stellar performance throughout last year and early 2015. The first quarter of 2015 sales reached 62,882 hits, breaking the 60,000 unit record for the first time,” according to a Carmudi report.

Albert Arcilla of Chevrolet Philippines Auto industry veteran and lawyer Alberto B. Arcilla confirmed to Inquirer Motoring on July 28 this continuous growth. “I remain confident that the 300,000 unit target for 2015 would be attainable. The entry of new models fuelling the growth of new and established segments will play a critical growth factor. Adding to the optimism is the aggressive financing packages offered through bank partners and the automotive requirements of markets outside Metro Manila that has shown consistent and robust growth in the past six months.”

Arcilla is also the president and managing director of The Covenant Car Co. Inc., the exclusive distributor of Chevrolet vehicles.

Another auto industry expert, Greg Yu, assessed the first half of 2015: “The first six months of the year have been very good not only for us and the brands we carry but for the entire automotive industry as well.”

The Asean Automotive Federation observed that the Philippines has become the fastest-growing automobile market in the region, ahead of Singapore, Malaysia, Indonesia and Vietnam. Higher income, plus easier financing, have contributed to stronger sales, especially in private cars.

In Southeast Asia, an average per capita income of $2,600 has triggered a rapid increase in motorization. Thailand and Indonesia reached this threshold in the last decade. The Philippines achieved it a year ago, and its citizens are now beginning a strong push to motorize.

According to the IMF, vehicle ownership accelerates quickly when countries reach an income level of $2,500 per capita. This rapid growth continues until the cap of about $10,000 per capita is reached.

Carmudi said that with a healthy, sustained economic growth, coupled with a strong consumer purchasing power, the Philippines is becoming an increasingly attractive prospect for car manufacturers.

In 2014, the Philippine economy grew 6.1 percent, and that is expected to reach 7 percent by the end of 2015.

The IMF reports that this growth is attributed to more Filipinos joining the labor force, and rising investments in the country.

In the past year, 73 percent of car dealers surveyed reported an increase in sales.

Record numbers

1MMSTONE_VIOS2The direct result of motorization, naturally, would be auto manufacturers seeing bold, black numbers in their bottomlines.

For instance, on July 15, auto giant Toyota Motor Philippines celebrated its 1 millionth car sold in the Philippines, thereby strengthening its hold on Asia’s top 3 spot.

In December 2014, TMP grabbed the No. 3 spot in Asia (excluding Japan) for its January to December sales, overtaking Malaysia as far as Toyota sales records were concerned.

From 19th in 2013, TMP pole-vaulted to 16th among Toyota distributors worldwide in 2014. TMP’s 2014 sales of 106,000 landed the Philippines into the prestigious 100K club of Toyota distributors worldwide.

Hot streak

The hot streak continues. TMP president Michinobu Sugata said that “for the first six months this 2015, Toyota nearly sold 58,000 units, giving us a 19 percent increase from the same period last year. Team Toyota has now shifted to higher gear, moving forward towards the next one million units in less than 10 years time.”

He also expressed hope that the Philippine government’s CARS (Comprehensive Automotive Resurgence Strategy) program “will further allow the continuity and competitiveness of the automotive manufacturing industry, leading to more jobs and revenue contributions to the Philippine economy.”

mercedes-gla-2Yu, who is CATS Motors chair and Auto Nation Group Inc. treasurer, said that his team is “very happy with the performance of both Mercedes-Benz and Chrysler in the first half of the year. We want to use this momentum to carry us into the second half of 2015. For both brands, we realized considerable growth between the first half of 2014 and the first half of 2015—68 percent for MB and 10 percent for CJD.”

Added Yu: “We are confident we will outperform our January to June performance. Exciting new models like the Chrysler 300C will make a big comeback, and the introduction of new variants of the popular Jeep Wrangler will contribute to the growth for the Chrysler Group.

“For Mercedes-Benz, our new SUV line up, new variants for our core models [S-, E-, C-Class] and exciting models from AMG will surely set the pace for us in the second half.”

Arcilla said that “the second semester shall see a host of next generation successors of current models, which will grow the medium SUV sales.

Burgeoning segments

“There are also burgeoning segments such as the mini-SUV that will provide even more choices for the market. Also, we should have more information on the implementing guidelines for the CARS program of the government.”

He added that “Robust sales propelled by promotions and easy ownership schemes should be abundant toward the end of 2015 as brands shift towards Euro 4 compliance. Additionally, an anticipated drop in tariff on Korean cars in January 2016 will be advantageous to brands with a Korean manufacturing footprint.”

Arcilla said that “the implementation of various policies by the government agencies can pose as challenges if not well communicated to the market.

Yu said: “Issues like port congestion and the no-registration (no-plate) no-travel policy have plagued the industry in the first half, but it looks like these have been resolved.

“The next challenge for some of the industry players will be the implementation of Euro4 emission standards effective Jan. 1, 2016.

“The industry still seems to be unclear regarding the implementation of this new standard, hence it cannot plan properly to address this change. On our side, we are ready, and this new standard will not affect us at all.”

Other factors pointed out by industry players were interest rates on auto loans going down, more affordable financing packages becoming available, national per capita income reaching $3,000, and oil prices continuing to plummet.

Orbeta said that Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) is already forecasting to break the 300,000 sales mark in 2015.

Lawyer Rommel Gutierrez, Campi president and Toyota Motor Philippines first vice president, said that “the increased domestic purchasing power and improved economic fundamentals will make the local automotive industry expect a total of 300,000 sales in 2015.”

Moderate growth

On road and on the track, the RC F is intended to evoke the LFA’s racing heritage.

On road and on the track, the RC F is intended to evoke the LFA’s racing heritage.

Isla said that he has “a strong belief that the market will continue to grow, albeit moderately in 2015,” and that “the growth will be driven by the subcompacts and commercial vehicles (pickups and MPVs) on account of the continuously improving economy.”

He also observed that “World Bank data shows a steady rise in the GDP per capita income of the Philippines.”

Fe Perez Agudo, president of the Association of Vehicle Importers and Distributors (Avid) and Hyundai Asia Resources Inc. CEO and president, said that “there is a strong likelihood that the industry will surpass the 300,000 sales projection if we sustain our bullish economic indicators, like GDP and OFW remittances. The introduction of new, value-laden products will likewise move consumers to make wise purchases.”

Arcilla cited new models, new brands to come in the second half of the year: “There is strong growth expected in growing regional markets with economic growth being experienced outside Metro Manila. With the increasing availability of new brands and new models that target new segments and niches, we can expect an exponential growth of the market in 2015.”

Isla said: “Hitting a market volume of 300,000 units in 2015 translates to an 11 percent growth over the total industry sales of 270,000 in 2014. As there are more players in the market now, the major players will definitely continue their aggressive marketing approach to protect their share of the market.

“New product launches will continue to excite the market, and the banking and financial industries will cash in on the positive market developments by offering attractive and affordable financing packages,” he concluded.

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