Auto industry’s 8 ‘drivers’ headed to 5 ‘destinations’

The automotive industry isn’t a guessing game. Its future isn’t gleaned from a carnival-bound fortune-teller caressing a crystal ball. Like a journey, the industry is headed somewhere, to a destination preset by its movers, shakers and drivers. To know the future of the Philippine automotive industry, Inquirer Motoring consulted industry veterans and leaders, those seated at the front of this big bus called Philippine motoring. Here’s where they think mamang tsuper is headed to.

 

Destination 1: Fuel-efficient, budget-friendly cars

 

The country’s healthy demographics, with an emerging middle class and the “Generation Y” market, have changed the game in the automotive industry, rallying carmakers to provide innovative products at competitive prices. This was cited by Fe Perez-Agudo, Association of Vehicle Importers and Distributors chair and president and Hyundai Asia Resources Inc. CEO and president.

 

“When buying a car, consumers today seek more value than just basic functionality. The growing value-laden consumers have spurred growth for the A and B segments—where fuel efficiency, upgraded designs and budget-friendly prices attract a huge market base,” Agudo said.

 

She added: “Expect this trend to continue on the long-term as new employment opportunities open and, with these, better income prospects.”

 

Destination 2: Small sedans

 

“In the 1990s, compact sedans were the norm. But with the purchasing power not growing as fast as the prices of cars had gone up, there is now a shift to smaller subcompact sedans as well as small hatchbacks. Today, these are the biggest and fastest-growing segments of the Philippine market,” said veteran auto industry expert Arnel Doria, who is also Automobile Central Enterprise’s (ACE) head of sales and marketing. ACE is German Volkswagen’s Philippine distributor.

 

Destination 3: Commercial vehicles (CVs)

 

Industry veteran lawyer Albert Arcilla, The Covenant Car Company Inc. (TCCCI) president and managing director, sees a clear market preference for commercial vehicles.

 

“The CV segment has grown to comprise almost 70 percent of the total industry sales volume, and we expect this to remain or even grow with the emerging lifestyle preferences of buyers and the changing climate patterns where we experience unexpected rainfall volume that extensively affects our road conditions,” he said.

 

TCCCI is Chevrolet’s exclusive distributor in the Philippines.

 

Destination 4: Bigger SUVs from common platforms

 

“Bigger sport utility vehicles (SUVs) developed from common platform programs are outselling the small SUVs because of competitive pricing achieved through the use of common parts or parts-sharing,” Doria observed.

 

Destination 5: MPVs become a class of their own

 

Doria explained: “In the old days, multipurpose vehicles (MPVs) were just the normal no-frills Asian utility vehicle workhorses. But with the improvement in designs and features, they have become the accepted MPVs of everyone. Some models are even threatening the existence of jeepneys, with the proliferation of the MPV-based UV Express Service.”

 

He observed that in upscale houses, it is now common to see a sedan, an SUV and an MPV in the garage.

 

Who and what drives

 

The other question that pops up here is, who, or what, is the mamang tsuper? Who or what drives the industry to these destinations?

 

Driver 1: Increasing per capita income

 

Doria cited the region’s business analysts who have observed the Philippines’ rapid “motorization” upon breaching the $3,000 per capita income.

 

“The current per capita income is estimated at $2,500. If the economy continues to grow at the projected pace of 7 percent per annum, there is likelihood of achieving the $3,000 per capita income in the next years, perking up the domestic car market,” he added.

 

Driver 2: Low interest rates on bank loans

 

Doria explained: “At present, TD rates hover to as low as less than 1 percent per annum, so it doesn’t make sense leaving money to the banks. This contributes to increased consumer spending. In addition, interest rates on car loans are also at a record-low level, which is stimulating the growth of the car financing business of the banks.”

 

Driver 3: Reduction of import duties

 

“With the free trade agreements other than that happening in the Asean taking effect midway to 2020, there will be a reduction in the SRPs (suggested retail prices) of imported vehicles. This will cause additional expansion of the domestic market,” Doria said.

 

Driver 4: Ban on used-car imports

 

Doria said that the full implementation of the ban on used-car imports in all areas will increase the absorption of new cars into the local market.

 

“There will be incremental sales, as the demand for used-car imports will be filled by the entry-level models from the formal auto industry,” Doria predicted.

 

Driver 5: Fuel prices

 

“The lowering of fuel prices will encourage more automobile use and will drive an upmarket. However, higher fuel prices will discourage purchase of vehicles, especially those with bigger engine displacement. With higher fuel costs, ownership of hybrids and alternative fuels will become more attractive, which may result in better exhaust emission levels,” Doria said.

 

Driver 6: Aggressive financing

 

Arcilla stressed: “A robust economy creates demand that translates to sales and results in positive growth. An aggressive and progressive financing sector also plays an important role in facilitating the purchase through creative financing packages.”

 

Agudo explained that “with record-high sales and the entry of new players, the industry’s positive performance has been fueled by robust economic growth, expanding the middle class and favorable financing costs.”

 

Driver 7: New models

 

Near the top of Arcilla’s list is the introduction of new car models in synch with the needs of the market. “We have seen how new model introductions have created new segments that now comprise a big chunk of the total market,” he said.

 

Driver 8: BPO, OFW remittances

 

Between these two sectors are billions upon billions of revenues—cash going straight to the pockets of future actual automobile buyers. Agudo recognizes the business process outsourcing (BPO) and overseas Filipino remittances, describing them as “key growth drivers.”