Cause for optimism

2018 will long be remembered as the year when a tax reform law and a soaring inflation rate walloped the Philippine automotive industry.

The Tax Reform for Acceleration and Inclusion (TRAIN) law that increased the excise tax on new vehicle sales took effect in January 2018.

By the end of the first quarter, two of the top five performers—Toyota and Hyundai— had posted a decline in market share compared to the same period in 2017, although both retained their year-ago rankings (first in sales for Toyota, third for Hyundai).

The industry’s first semester sales report brought more bad news: seven of the top 10 performers, including market leader Toyota, registered negative growth for the first time in many years.

The joint report of the Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi) and the Truck Manufacturers Association (TMA) posted a 12.5 percent slide in sales to 171,352 units, versus the same year-ago period’s 195,772, while the Association of Vehicle Importers and Distributors (Avid) reported an 11 percent decrease in sales from 48,344 units in the first half of 2017, to 43,138 units in the comparable period of 2018.

Spiked inflation rate

But there was another reason for the double digit negative growth aside from the TRAIN law: the inflation rate spiked to 5.2 percent in June 2018.

As Campi president and concurrent Toyota Motor Philippines (TMP) 1st vice president Rommel Gutierrez explained, the negative growth was “largely due to consumers’ prioritization of buying basic goods and services, as buying big ticket items like motor vehicles is less favorable at this time due to rising inflation.”

Avid president and concurrent Hyundai Asia Resources, Inc. (Hari) CEO Ma. Fe Perez-Agudo attributed the dampened consumer demand for vehicles to recent falls in the value of the peso, rises in imported fuel prices, a higher than ever inflation rate, and other seasonal factors.

Both Gutierrez and Agudo, however, expressed optimism midyear of 2018, that sales would recover in the coming months with a sustained growth achieved by the end of the year, as automakers introduce new models and adjust their marketing strategies to overcome the impact of TRAIN and high inflation.

Soaring

Unfortunately, the industry did not foresee the inflation rate soaring to 6.7 percent in September, so much so that in its report for the third quarter, Campi’s aggregate sales for the first nine months of the year fell by 13.8 percent with total sales of 261,057 units, versus 302,859 in the same period in 2017.

Avid also sustained negative growth, with sales plunging 13 percent to 65,917 units, compared to the previous year’s 75,949.

Thus, the decline continued for the two major automotive organizations: Campi sales fell by 12.5 percent in the first semester, and dropped further to 13.8 percent in the third quarter.

Avid’s total sales went down by 13 percent in the third quarter after falling by 11 percent in the first semester.

Month-to-month growth

To put a positive spin on these dismal figures, Gutierrez in the Campi third quarter sales report began to highlight month-to-month growth, instead of comparing the year-to-date (YTD) sales to the same year-ago period.

Gutierrez pointed out a 2.6-percent growth in total vehicle sales, from 30,313 units in August 2018 to 31,116 units in September 2018.

And in his latest press release, “Auto Industry Anticipates Better Year Ahead,” Gutierrez cited the 2.2 percent month-on-month positive growth of Campi-TMP total sales, with 31,945 units sold in December 2018 from 31,258 units in November 2018.

The Campi president’s optimism notwithstanding, the fact remains that 2018 total sales are down to 382,361 units YTD December 2018, versus 448,107 units in 2017 (see consolidated Campi and Avid graphs).

In the top 10 list, eight had diminished market share.

The YTD December 2018 consolidated sales report shows the same brands occupying the same positions as in the first semester, but with two brands poised to catch up with their rivals.

Market leader TMP’s market share fell from 41 percent to 40 percent, as its 2018 YTD total vehicle sales chalked 153,004 units, versus 183,908 in 2017.

On the other hand, TMP continued to claim for the 17th consecutive year the triple crown award as the number one carmaker in passenger car sales, commercial vehicle sales, and total vehicle sales.

Mitsubishi Motors Philippines Corporation (MMPC) ranked second in total vehicle sales in 2018, with 67,512 units sold for 17.7 percent market share, down from 73,590 units sold in 2017.

Nipping at its heels

Hari clung to third place with 35,401 units sold, 6 percent less than 37,678 in 2017.

But Hari has to step up its sales as Nissan Philippines, Inc. (NPI) is nipping at its heels with 34,952 units sold, an amazing double digit percent surge over 24,995 units in 2017.

NPI’s market share accordingly rose to 9.1 percent in 2018, from 5.6 percent in 2017. Its record sales in 2018 is now only 449 units short of Hari’s.

Ford Motor Company Philippines, Inc. sustained the second biggest drop in total vehicle sales after Isuzu Philippines Corporation.

Ford sold 23,571 units in 2018, compared to 36,623 in 2017 for a 6.2 percent market share, versus 8.2 percent in 2017.

Like Hari, Ford had better watch out because the sixth ranking contender, Honda Cars Philippines, Inc. (HCPI) is only 277 units away from catching up with Ford, with 23,294 Honda cars sold in 2018.

This came about even as HCPI’s sales dropped from 31,758 in 2017, and its market share went down to 6.1 percent in 2018, from 7.1 percent in 2017.

Suzuki at 7th

Aside from Nissan, Suzuki is the only other brand that posted positive sales growth in 2018 versus 2017.

Suzuki Philippines (SPH) sold 19,740 units last year versus 19,263 in 2017. SPH thereby retains seventh place among the top 10 with 5.2 percent market share in 2018, compared to 4.3 percent in 2017.

IPC occupies eighth place with 16,729 units sold and 4.4 percent market share in 2018, a sizeable drop from 30,086 units sold in 2017, and 6.7 percent market share.

IPC is hampered by a limited number of models—only two in fact, D-Max and mu-X, when the Crosswind AUV was phased out this year.

Foton Motor Philippines, Inc. wasn’t in the top 10 at all in 2017, but in 2018 overtook The Covenant Car Company, Inc. (TCCI), which imports and markets Chevrolet vehicles.

Foton sold 4,141 units in 2018 for a 1.1 percent market share.

TCCI managed to stay in the top 10 in 2018 by selling 4,017 units, versus 5,949 in 2017, paring its market share to 1.1 percent in 2018, down from 1.3 percent in 2017.

Cautious projections

After total vehicle sales in 2017 amounting to more than the targeted 450,000 units was computed, industry leaders were cautious in their projections for 2018 due to the imposition of TRAIN.

They did not expect to surpass their 2017 sales in 2018, but remained hopeful as they expected only short-run market adjustments resulting from TRAIN.

What the industry did not expect was the inflation rate rising to 6.7 percent, aggravated by the almost weekly hikes in fuel prices.

Last December, when inflation eased a bit and the price of fuel went down, optimism in the industry returned.

But then, the government announced that the 2nd installment of excise tax increases on fuel products would be implemented as scheduled in January 2019.

Nonetheless, industry leaders are more than cautiously optimistic, with both Campi and Avid forecasting a 10 percent growth in 2019.

Gutierrez claims that the auto industry has been recovering since the second half of 2018, and expressed confidence that the continued month-on-month positive sales growth rate in recent months will be sustained in 2019.

“With GDP per capita on a high level, more new models to be introduced, and a strong economy, we welcome the new year with great excitement,” he declared.

Agudo sees inflation easing back this year to the 2 to 4 percent target, based on the Central Bank’s assessment.

She stated: “In fact, inflation slowed to a seven-month low at 5.1 percent in December 2018, as the liberated importation of key commodities and aggressive monetary tightening took effect.

“With more anchored expectations and risks to the inflation outlook appeared tilted to the downside, the Bangko Sentral ng Pilipinas is likely to loosen its monetary policy.

“As the economic backdrop for robust vehicle sales becomes intact, Avid is bullish on its outlook as the industry is projected to grow by 10 percent in 2019.”