10 reasons record-setting 2014 isn’t a fluke

Photo by Tessa Salazar

Could it be just a one-time thing, this record-setting growth spurt?

The Chamber of Auto Manufacturers of the Philippines Inc. (Campi), the Truck Manufacturers Association (TMA) and the Association of Vehicle Importers and Distributors (Avid) recently released updated sales figures (January-June 2014) showing 25-percent (Campi/TMA) and 17-percent growth (Avid) compared to the same period last year.

Fe Perez-Agudo, Avid chair and president and Hyundai Asia Resources Inc. CEO and president, explained to Inquirer Motoring that “Avid’s double-digit growth mirrors the performance of the industry driven by strong macroeconomic fundamentals and positive local business and consumer sentiment, as reflected in the latest Nielsen report and credit rating upgrades.”

Lawyer Rommel Gutierrez, Campi president and Toyota Motor Philippines’ first vice president, said that for three consecutive years now, the auto industry has been experiencing double-digit growth, adding that “the growth rate is unprecedented and a clear indication that the country is entering the motorization stage.”

In 2013, 265,000 new vehicles were registered with the Land Transportation Office, with 212,281 of those accounted for with Campi and Avid.

Arnel Doria, a 27-year auto industry veteran, explained that the difference in figures “can be attributed to those manufactured from backyard shops, sales from nonaligned importers and used-car imports. What is not reflected here is the volume of domestic used cars sold to secondary buyers, as this sector of the auto industry is not formally being monitored.”

Clearly, the automotive market is now dominated by the entry of new vehicles. But will this trend stick? Key players in the industry cite 10 reasons why the sales spike is no accident, and that, perhaps, a new “golden age” of Philippine motoring has just begun.

1. More choices, more affordable vehicles

Agudo observed that the automobile industry has become increasingly  competitive, which can only mean that consumers would be at the winning end, with a wider choice of products and prices, particularly on affordably priced vehicles.

2. Affordable subcompact cars

Agudo cited subcompact vehicles as significantly contributing to the increased affordability of new vehicles.

3. New vehicles more practical versus used cars

Gutierrez noted that the “purchase of new motor vehicles has become more affordable and convenient. With new vehicles reasonably priced relative to the price of used vehicles, it’s not going to be a hard choice getting a new one over a second-hand/used one.”

4. Asean integration brings in imports

Come 2015, when the Asean Economic Community is established, the Philippines will witness an increased volume of vehicle imports from its Southeast Asian neighbors. Doria already observed an increased volume of imports from Thailand in the first half of the year, which was aggressively pushed to the market via attractive sales promotions.

5. Pinoy purchasing power, particularly in the overseas Filipino  and middle class, grows

“On the demand side, the sustained growth in overseas Filipino remittances and positive consumer confidence [will keep sales up]” quipped Agudo.

6. Increasing per capita income

Doria pointed to the increasing per capita income as the main driver of the growth of the Philippine automotive industry.

“Business analysts in the region have observed that a country experiences rapid motorization upon breaching the $3,000 per capita income. The current per capita income of the Philippines is estimated at $2,500. If the economy continues to grow at the projected pace of 7 percent per annum, there is the likelihood of achieving the $3,000 mark in the following years, and that will perk up the domestic car market.”

7. Low interest rates

“Interest rates [on bank loans] continue to slide; at present term deposit  rates hover  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,” said Doria of the second driver of  industry growth.

The following factors, should they come to pass, would further strengthen the industry’s steady growth, according to Doria:

8. Reduction in import duties

Doria explained: “With the free trade agreement other than Asean taking effect midway to 2020, there will be reduction in the standard retail prices of imported vehicles. This will cause an additional expansion of the domestic market,” he said.

9. Restrictions on used-car imports

“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 noted.

10. Lowered fuel prices

The lowering of fuel prices would encourage more auto use and will drive an up-market. Conversely, higher fuel prices would discourage auto purchases and use.

But then again, with the diversity of vehicles being developed and marketed, higher pump prices could merely take the industry on a “detour,” as fuel price-conscious consumers would either opt to buy vehicles with smaller engine displacements or go for hybrids.