TRAIN delivers year-end surprise to auto industry

The approved auto excise tax rates of the Tax Reform for Acceleration and Inclusion (TRAIN) delivered a year-end surprise to the Philippine automotive industry. TRAIN has got the car companies re-crunching numbers for their 2018 business plans and projections.

It was “not as expected” said Chamber of Automotive Manufacturers of the Philippines (CAMPI) president Rommel Gutierrez last Wednesday when TRAIN was signed into law.

Ever tactful and diplomatic, Gutierrez, who is the 1st vice president of Toyota Motor Philippines, (TMP) added: “The automotive industry submitted its proposal to both House and Senate which we think are the appropriate excise tax rates for the industry, the consumers and the government. Nevertheless, we respect the wisdom and judgment of Congress in coming up with its own version.”

Simply summarized, TRAIN increases from 2 percent to 4 percent the excise tax on vehicles sold at net manufacturer’s price up to P600,000 (Bracket 1); vehicles sold for P600,000 to P1 million will be taxed a flat rate of 10 percent (Bracket 2); 20 percent for vehicles priced between P1 million and P4 million (Bracket 3); and 50 percent for vehicles with a net manufacturer’s price of more than P4 million (Bracket 4.)

In effect, TRAIN will reduce the excise tax on luxury vehicles selling for more than P4 million while increasing the tax on lower-priced mass market vehicles. Hybrid vehicles will be taxed 50 percent of the regular rates imposed on vehicles with internal combustion engines, and fully electric cars will be totally exempt from the excise tax.

Under the new law, pickup trucks will also be exempt from the excise tax, but it is not yet clear whether the exemption includes crew cab trucks (with 4 doors) used mostly as lifestyle vehicles or only two-door commercial pickups. Commented Gutierrez: “This is not part of the proposal of the industry.”

DISAPPOINTED. Interviewed by business reporters last Wednesday at Toyota’s Christmas lunch for the media, TMP president Satoru Suzuki expressed disappointment that higher excise taxes will be imposed even on locally produced vehicles, making the incentives of the Comprehensive Automotive Resurgence Strategy (CARS) program “meaningless.”

TMP was the first automaker to qualify for one of three slots in CARS, which requires each participant to produce at least 200,000 units of a participating model over the six-year life of the model.

“TRAIN will certainly have an impact on the CARS program,” Gutierrez says. “The support given to participants may simply be offset by the increase in excise tax. It may also have a negative effect on the performance of the participants to achieve the volume required under the program.”

Both Gutierrez and Alfred Ty, vice chairman of TMP, declined to estimate the suggested retail price of the full-model-change Vios, TMP’s participating model in CARS, when it comes out mid-year 2018.

Neither would Raymond Rodriguez, president of Lexus Manila, Toyota’s premium car division, cite a ballpark figure for their vehicles.

But the price of the Vios won’t reach P1 million, Ty said. While he admitted being surprised by the approved version of TRAIN, “it’s not as bad as it could have been.”

YTD SALES CELEBRATED
Despite the unpleasant year-end surprise supplied by TRAIN, the industry had reason to celebrate the year’s achievements so far. CAMPI and the Truck Manufacturers Association (TMA) reported a year-to-date (January to November 2017) 16.8 percent increase in sales to 380,179 from 325, 468 units in the same period last year.

Gutierrez said that the recent surge in sales may be attributed to the impending change in excise tax rates, since prior discussions of various excise tax rate proposals – before the final version came out — could have been a major factor in consumers’ behavior.

TMP led the brands in YTD 2017 sales with 109,808 units sold, a 24.2 percent increase over the 88,393 units sold in the same period of 2016.

It gets better. At the Christmas lunch for media, TMP president Satoru Suzuki updated the company’s YTD sales to 166,601 units, already surpassing 2016’s full year sales of 158,728 units.

Vios, the best-selling vehicle in the market across all segments, posted YTD sales of 34,338 units. Suzuki added that securing TMP’s leadership in the industry, a Toyota nameplate is the best-seller in six out of eight segments.

YTD, the other brands that made it to the Top Five are Mitsubishi Motor Philippines Corp. ranking second with 48,974 units sold, a 31.6 percent increase over 37,207 in the same period last year.
In the CAMPI-TMA list, Isuzu PH Corp. was third with 26,277 units sold, a 7.7 percent increase over 24,396 in 2016.

HYUNDAI STILL THIRD. But if the YTD 2017 sales of the Association of Vehicle Importers and Distributors (AVID) is included, Hyundai Asia Resources, Inc. would be third with 34,025 units sold, a 12 percent variance over its 30,469 units sold in the same period last year.

Ford PH, a member of both CAMPI and AVID, would be fourth with 31,994 YTD units sold, marking a 5 percent variance over its 30,490 YTD sales in 2016.

Strangely enough, in the CAMPI list, Ford posted YTD sales of only 21,249 units, a 4.5 percent increase over the 2016 YTD of 20,339, ranking it below Isuzu.

So, if we are to recognize AVID’s Ford stats as more accurate than CAMPI’s, Isuzu would be fifth. But if we follow CAMPI’s numbers re Ford, Isuzu would be fourth and Ford, fifth.

Excluding AVID’s YTD sales report, Nissan PH, Inc. is fifth with 14,856 units sold in the CAMPI list, Honda is sixth with 12,541, Suzuki is seventh with 9,049, Foton is eighth with 3,852, Kia is ninth with 1,507 and Mazda tenth with 1,403.

PDI Motoring tried to reach AVID president and concurrent Hyundai Asia Resources, Inc. CEO Ma. Fe Perez-Agudo for her reaction to the TRAIN law, but she was out of the country on holiday.

However, PDI Motoring got first dibs on AVID’s 2017 YTD sales report announcing that its members’ total sales grew by 11 percent from 84,531 units sold in January-November 2016 to 94,003 units in the same period this year.

In a press release, AVID credited the strong sales performance to a combination of solid macro-economic fundamentals and the anticipated price increases from the newly signed TRAIN law.

AMBITIOUS SALES TARGET.
So, if we combine CAMPI-TMA’s total YTD sales of 380,179 with AVID’s 94,003 (but deduct the redundancies of Ford’s and Suzuki’s AVID figures of 31,994 and 16,837 respectively) we get a grand total of 425,351 units YTD January-November 2017.

No wonder Gutierrez expressed confidence that the industry’s ambitious sales target of 450,000 units for the year will most likely be achieved.

As for 2018, “The future of the industry remains bright,” TMP vice chairman Alfred Ty said, although “We have to do our computations based on the final version of TRAIN.”

“With the new excise tax rates on automobiles finally determined, the auto industry can now better plan for the future,” Gutierrez agreed. “We remain confident that the Philippine automotive industry will continue to be a major contributor to the economy.”