For the PH auto industry, more lows than highs in 2018

The Philippine automotive industry has come a long way since 1985, the year when the Philippine Daily Inquirer (PDI) was founded.

Thirty three years ago in 1985, total vehicle sales under the Progressive Car Manufacturing Program sank to about 6,000 units from around 30,000 in 1980.

This year, at the end of the third quarter, the industry should have had reason to celebrate since year-to-date (YTD) total vehicle sales from January to September reported by the Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi) was 261,057 units while the Association of Vehicle Importers and Distributors (Avid) posted 65,917 units sold.

Compared to 6,000 in 1985, that is a quantum leap in sales.

But compared to the same YTD third quarter in 2017 when Campi reported 302,869 aggregate sales, it reflects a 13.8 percent drop, while Avid, having sold 75,949 units in the same year-ago period, registered a 13 percent decline.

No one was really shocked, since a pattern had already been set. In the first half of 2018, Campi’s total vehicle sales fell 12.5 percent versus the first half of 2017, and Avid reported an 11 percent slide compared to the first semester last year.

Runaway inflation

While the slowdown was at first blamed on the Tax Reform for Acceleration and Inclusion (TRAIN) law that hiked the excise tax on new vehicles starting Jan. 1, it soon became apparent that rising inflation which hit 5.2 percent in June and 6.6 percent in September was also a major factor.

Asked whether she foresaw a spike in the inflation rate at the start of 2018, Ma. Fe Perez-Agudo, president of Avid and concurrent CEO of Hyundai Asia Resources, Inc., e-mailed: “We did foresee the inflation rate increasing due to the passing of the TRAIN law, but only to a certain extent. It was not expected to sustain itself till the end of the year.

“Supply drive factors such as oil, rice prices, and other external factors coupled with the exaggerated price increase in anticipation of the effects of TRAIN kept the pressure on inflation throughout the year.

“But, we see that these effects would eventually taper down in 2019. This rate of inflation has minimal effect on the demand for our products.

“We are more concerned with the decision of the Bangko Sentral ng Pilipinas in response to this, as the increase in interest rates plays a major role in the pricing of auto loans.

“Even so, the sales of automotive vehicles are mainly driven by their perceived added value.”

Expected

Joseph Bautista, Isuzu Philippines Corporation sales division head, said: “Every year, there is this movement in inflation, whether going up or down. And at the start of [2018], looking at the constant increase in the price of fuel from January up to about September, we actually expected it.

“It was one of the factors that really affected us. It’s a cycle, and since the price of fuel is currently stabilizing, we expect it to slightly go down by the end of the year.”

The top sales and marketing honchos of three other brands expressed the same thing:

Toyota Motor Philippines Corp.: “TMP did expect inflation to be high as an effect of the TRAIN law, but because of some unexpected factors such as the increase of fuel prices, inflation is higher than expected.”

Honda Cars Philippines, Inc.: “We would not say we did not anticipate a spike in inflation this year, but the significantly fast rate is what caught the entire economy off-guard.

“Despite that, we as a Honda brand remain optimistic that the economic situation will recover in the coming months.”

Foton Motor PH, Inc.: “We did not expect it to be this high, but Foton is thankful that we still have a little growth up to this point …. Foton still posted a 5 percent increase compared to last year.”

TRAIN Law’s impact

The question arises whether industry players foresaw the TRAIN Law’s impact on sales in 2018, even before the soaring inflation rate walloped them.

Toyota did foresee the drop in sales this year as evidenced by the high sales level in 2017 because of the “pull-forward” effect of the TRAIN law.

“However, the changes on inflation and policy rates are higher than forecasted, even by BSP. This had a huge impact on consumer buying behavior, most especially on big ticket items such as automobiles,” TMP commented.

On the other hand, despite the huge decrease in car sales, TMP considers its highest achievement this year being its retention of market leadership in passenger cars, commercial vehicles, and overall sales as of October.

Hyundai Philippines still ranks No. 3 in terms of overall sales, after Toyota and Mitsubishi.

Hyundai president Agudo explained how: “The impact of the TRAIN law on this year’s sales performance was something that we have precisely figured out during our corporate and sales planning sessions last year.

“With the version of the TRAIN law that was enacted, we anticipated that there will be an immediate but short-term decline in total industry volume.

“Also, we saw minor shifts in buying patterns of the consumers, skewing towards SUVs and value-for-money models.

“As such, we were able to prepare and adjust our program and strategies in such a way that we are able to absorb the business impact.

“To date, Hyundai is performing much better than industry average.”

Isuzu ranked eighth in overall sales YTD in the third quarter.

Isuzu Philippines sales and marketing division head Joseph Bautista said: “Initially, it was analyzed in 2017 that the decrease in income tax will somehow complement the price increase of commodities.

“However, the uncontrollable increase of fuel prices in the global market disrupted the predicted balance, and it further rippled its effect to other commodities.

“This event left our consumers with less disposable income to purchase a vehicle.

“Nonetheless, we had expected a decline in our sales for this year. But we weren’t expecting such a significant decline, and we think it goes for the whole industry.”

Highs

Now for the good news:

1. Campi’s 7th Philippine International Motor Show (PIMS) was a big success last October, attracting 41,000 visitors according to an initial estimate.

PIMS was preceded by the 15th Manila International Auto Show (MIAS) in April at the same venue, the World Trade Center.

PIMS, per the final counting, attracted 138,000 visitors.

2. Despite the runaway inflation rate and the TRAIN law, at least one brand posted remarkable growth.

Nissan Philippines, Inc. (NPI) gained a 40.6 percent increase in sales in the YTD third quarter versus the year-ago period, thus cornering 8.8 percent of the market and overtaking Ford Motor Co. Philippines, Inc. to grab third place in Campi’s sales performance hierarchy.

3. Six brands in the list of the top 10 YTD Q3 sales performers inaugurated 18 new dealerships outside Metro Manila.

This projects the industry’s optimism that the economy will recover in the near future, spurring new vehicle sales.

The six are: Toyota with five new dealerships for a total of 69 (including Lexus); Isuzu with four new dealerships for a total of 45; Nissan with four new dealerships for a total of 43; Foton with three new dealerships for a total of 26 full operating dealerships; Ford with one new dealership for a total of 48; and Chevrolet with one new dealership for a total of 26.

4. This year, at least two brands added more safety features to their affordable models aside from the usual ABS with EBD, seatbelts, engine immobilizer with alarm.

The new Toyota Vios now has seven airbags, vehicle stability control, and hill start assist as standard equipment on all variants.

The Toyota Rush has six airbags and vehicle stability control, which includes traction control, hill start assist, and emergency stop signal.

The 2018 Hyundai Accent has six airbags, electronic stability control, vehicle stability management, traction control and rear view camera.

Anticipating higher sales in 2019

Despite the woes of 2018, by the time the Inquirer celebrates its 34th anniversary in December next year, the auto industry players anticipate to have achieved more highs than having to survive lows.

Their optimism is based on a recent news item from Bangko Sentral economists expecting a slowdown in inflation due to the sharp decline in petroleum prices, a normalization of supply conditions of rice and other agricultural commodities, and the appreciation of the peso in November.