Protecting the PH automotive industry

Last Thursday, August 2, President Rodrigo Roa Duterte led the ceremonial destruction of seized used luxury vehicles in Port Irene in Cagayan Province up north.

The very graphic video showing bulldozers crushing a variety of ultra-luxury sports cars that included a number of Porsche 911s, a Lamborghini Gallardo, a slew of Mercedes-Benz models, few Nissan 350Z sports cars, a bevy of Harley Davidson motorcycles, and more sent the Internet into a manic frenzy.

Not just in the Philippines, but even foreign media outlets picked up on it and cried foul, saying it was a waste, and that they should have been re-exported, auctioned off, or given to the police and military.

Just as many, however, agreed that demolishing these seized vehicles was the right thing to do.

Executive Order 156 bans the importation of used private vehicles, yet many ports outside of Metro Manila, away from intense scrutiny of media and government as well as NGO watchdogs, continue to allow importation of these used vehicles, and would patiently wait for a lull in attention and media coverage before slowly getting these vehicles registered, and then plying the Philippine’s busy roads.

Apparently, the Duterte administration has had enough, and since he assumed office, PRRD has ordered the demolition of many of these seized vehicles, inviting media and televising these events.

Personally, I feel this is the right decision, and I applaud the Duterte administration in their action.

Oftentimes, seized vehicles and other contraband would be auctioned off, and the usual results in the past has been that the same people who tried to import these vehicles would be the only bidders at an auction, which is so obviously rigged, thereby regaining ownership of the same vehicles or contraband after the auction.

A friend, who refused to be identified, recounts a story of how he won at a Customs auction of seized vehicles, only to be phoned by shady people a few hours after that they would like to buy the said vehicle from him, even at a modest premium.

My friend, surprised and shocked at how these shady people knew him, was rattled and immediately sold the vehicle that he had purchased at an admittedly cheap price, one well below actual market value.

It is very easy to rig these auctions, such that a failed auction would often be the result.

Auctions would keep on failing until the government unit finally decides to sell the said vehicles at a low price, enough for the original owners to regain ownership of these vehicles, and effectively “laundering” these vehicles, making them perfectly legal to be registered, sold and used on our roads.

It is also difficult to legally qualify to join these auctions, unless you knew someone in the right place/s, and again easy to rig these auctions such that the winning bidder competing with other bidders is actually only one and the same.

The current administration knows this, and that disposing of these vehicles for some income would only create more avenues for graft and corruption in the government.

Long-term, had we allowed the auction of said vehicles, the cycle of importing used cars for smuggling into the country would continue, and the government knows that eliminating any and all chances for success for these smugglers by destroying seized vehicles is the only way to break this vicious cycle, and ultimately, help protect our local automotive industry.

Despite the demolished vehicles being all luxury cars in the video shown last week, thousands more vehicles of mass-market intent have previously been imported into the country, which puts a dent on new car sales.

And as the country slowly achieves full motorization, we must at all cost, protect the government, its constituents and all stakeholders.

The simple, short-term profiteering risks the long-term viability of the Philippine automotive industry.

To add, many of these cars have questionable origins (stolen from abroad), and if they ever got registered, have equally questionable tax payments, as the government has no basis for assessing the base price, and therefore all the taxes and duties that need to be levied on these cars.

Let’s not even get to their roadworthiness and safety. Many of these cars also have what’s called a salvaged title (meaning, they were wrecked or figured in a massive accident, flooded or caught fire, and have been considerably rebuilt, but with still questionable integrity, which is why their vehicle titles are marked as “salvaged” in countries like the USA).

Do we want cars like this sharing space with us on our already congested roads? I don’t.

In 2012, the Philippine Automotive Competitive Council Inc. submitted a study which outlined the size, scope and competitiveness of the local automotive industry.

As of 2012, the total accumulated investments have reached P120 billion, and the industry paying roughly P30 billion in taxes and duties directly to the government.

On the automotive manufacturing side, there is an estimated 68,000 jobs generated by the industry, and another 15,000 jobs generated by dealerships and aftersales services.

A further 327,000 jobs are also generated by the industry in supporting upstream/downstream channels.

This was in 2012. From 2012 to 2017, the automotive industry has grown immensely, from sales of 182,000 units in 2012, to a staggering 473,500 in 2017.

The industry has grown in value by more than double, and has begun to employ even more people in the manufacturing, after sales, dealerships and supporting industries.

The average automotive buyer has become even more sophisticated nowadays, as well.

Buyers now demand for their vehicles increased safety equipment, improved capability in adverse road and weather conditions, more cost-effective running performance, and improved fuel efficiency while delivering Euro IV emission standards.

As of June 2018, Toyota sold 13,651 of Vios units, followed by the Mitsubishi’s Montero Sport at 9,555 units.

That the second most popular vehicle sold costs on the average almost twice as that of the first place vehicle says a lot about how Filipinos are putting a premium on their needs.

And we are spoilt for choice. We have almost 350 unique vehicle models for sale across 54 brands that come from Japan, China, Korea, America, Germany, the United Kingdom, France, Italy and more.

With the Comprehensive Automotive Resurgence Strategy (CARS) Program under Executive Order No. 182, Toyota and Mitsubishi will need to produce at least 200,000 cars in six years, or 33,334 cars per annum.

These locally assembled cars should stimulate foreign direct investments in the country, create more jobs, and also stimulate growth in the OEM supply and other supporting industries, all backed up with tax incentives.

Currently, cars like the Mitsubishi Mirage G4 and the Toyota Vios are enrolled in the CARS Program.

These may be simple, basic transportation, but for the greater population used to walking or commuting in PUVs of questionable quality under adverse weather and road conditions, having their own affordable, reliable cars is a much needed reprieve from the difficulties of commuting daily.

The industry is facing a massive challenge this year. Vehicle sales are down by practically half.

The high exchange rate caused by a strengthening US economy is not doing the local economy any favors, and partisan politicking and the spread of fake news tends to sow discord and dissent in society, which affects not only the automotive sector, but the entire Philippine economy as well.

Why am I saying all these? Firstly, we need to protect the entire local economy. We need to support the local automotive industry.

We need to be attractive to potential new entrants, and to be supportive to existing investors so that they will bring in more fresh capital to the country.

These foreign direct investments will create more jobs as they become more entrenched and integrated into the Philippine economy and society.

Investing in the Philippines is their way of showing their commitment to the Filipino people.

Somehow, I don’t see these used car smugglers who masquerade as legitimate importers doing so. They are often fly-by-night operations masked under much secrecy in the form of dummies and shell companies who only want one thing: a quick buck at the expense of the country’s long-term security and stability.

This sort of arrangement is unfair to every stakeholder who invests in the country for the longer term, which is why they should not be allowed to ever prosper in the local economy.

We have to support the industry in a way that is all encompassing and inclusive, that benefits every one for the long term, and not just something that benefits a chosen few for the short term.