More views, theories on the excise tax

Finance Secretary Carlos G. Dominguez III INQUIRER FILE PHOTO

The increase in the excise tax is a certainty as far as many people in government and the auto industry are concerned. It’s only a matter of how much, and when.

So what are the possible scenarios that can occur resulting from an increase in the excise tax?

I spoke to a number of friends in and around the auto industry, trawled through social media, and read up on other articles online on the effects of the proposed excise tax increase. The response has been quite alarming, to say the very least.

One theory is that the increase in excise tax will benefit used/secondhand car dealers. Surprisingly, many in the said industry do not think so.

The gist is that although there will be a boom in used car sales, the supply for used cars will dry up, and these used car salesmen will have nothing to sell, the reason being that used cars will be scarce as the original owners will not readily sell their old cars to upgrade to newer ones, and the few used cars available will be expensive to begin with, lessening their elbowroom to make a profit.

Short term, it will be favorable, but after two to three years, used-car salesmen fear they will languish with bare or even empty forecourts with a few expensive used cars to sell.

Speaking to Tommy Teng of DTM Motorsports, a small independent car service and aftermarket tuning shop, the prospect also doesn’t look good for his business.

DTM Motorsports has roughly a 70-30 split on its business: 70 percent goes to aftermarket tuning, upgrades and modifications which yield a higher margin versus the 30 percent of the business which is regular PMS servicing for cars.

Should the excise tax increase be passed, Tommy feels that the margin will level up to 50-50, perhaps even lower for the aftermarket component.

He feels less people will be inclined to modify/upgrade their cars, and will focus more on keeping them in tip-top shape.

The problem is, many high-end cars are seldom used, and will require maintenance far and few in between, reducing Tommy’s business over at DTM Motorsports.

Mike Ong, a parts importer and retailer for a popular line of SUV/4×4 performance parts, feels that the aftermarket industry will be halved should the excise tax increase finally push through.

His insights include the fact that SUVs, pickups and other 4x4s will become more expensive, and will reduce the end-user’s overall disposable income or budget for aftermarket parts and upgrades because of the rise in SUV, pickup and 4X4 prices.

As for the automotive industry itself, there have been loose talk on how to circumvent the overall price increase.

An industry executive has unofficially admitted that their company is open to absorbing some of the cost of the increase and/or reducing their profit margin to reduce the overall SRP increase.

The logic is that manufacturers will sacrifice short-term profit to ensure the continued growth rate of automotive vehicle sales in the Philippines.

Others have suggested a dumbing/watering down of vehicle specs to reduce cost.

Unfortunately, this will be of great disadvantage to the Filipino consumer: expensive and complicated active (traction, stability control, ABS-EBD) and passive (airbags) safety equipment will be the first to go, followed by simpler things such as a switch from alloy wheels to steel rims with hubcaps, the loss of multimedia-infotainment systems and satellite navigation, from leather seats back to fabric, and manual window winders for some base-model vehicles.

It’s practically like buying a car in the late ’80s/early ’90s again when the automotive industry was in its infancy.

Sounds bad, right? The worse part? More and more older cars will proliferate our roads.

That’s not a bad thing in itself. But the problem is that the vast majority of these cars are poorly maintained, prone to vehicular breakdowns, have very inefficient engines, and let’s face it, offer poor passenger safety versus a newer car in the event of an accident.

These cars will consume more fuel, adding to the air pollution in our bustling cityscape, and will be less safe in the event of an accident for its occupants.

Right now, various versions of the excise tax are being floated around, some from the industry, from the Department of Finance (DOF), and through individual lawmakers.

But it seems like the DOF’s proposal is the one being pushed for the most part.

The problem, according to many industry insiders, is that their proposal has so many false assumptions which do not clearly and accurately represent the increase of actual vehicles.

But when I suggested that the industry, through CAMPI or AVID, the two largest industry organizations, issue a statement, the industry executives balked and declined.

They are afraid of political repercussions on their brands and organizations. Bottom line? We, the consumers are left in the dark, not fully knowing or understanding the situation.

For the past four to five years, the industry has grown in leaps and bounds, and has overcome numerous challenges as our country gears toward motorization.

Many industry players have invested a lot in the country with strong belief in the government, and crucially, the Filipino people.

All the work the industry has put into our country stands a huge chance of going to waste. I hope the Duterte administration and Secretary Sonny Dominguez will consider all other options and suggestions before the increase is passed into law.

And trust me, it will be passed.