Tito F. Hermoso / | January 20, 2010 10:00
Second-hand import havenInvestigative amateurs
Two years ago, some enterprising amateurs trumpeted an investigative journalism expose, proclaiming a Subic import rebirth, while producing photos of rows upon rows of vehicles parked at Port Irene at Luzon's northernmost tip. That, indeed, is proof of what is not concealed - lots of vehicles parked and waiting to clear customs, innuendos of "smuggling" notwithstanding. Fast forward a few weeks later and the same vehicles were now on the road, sporting B-prefix license plates of Region 2, Cagayan Valley.
Beginning 2010, latest reports on 2009 local new car sales reached 130,000 units, a gain of some 4.0% over 2008. An admirable achievement amidst the global recession, it is still far from the pre-Asian crisis sales level of some 160,000 units. But if the latest compilation of new car registrations were to be believed, some 50,000 units came from other sources.
Considering the huge fixed investments, payrolls in the assembly plants and even bigger payrolls in the parts manufacturing industry, the local auto industry is alarmed. They've been through the mood swings caused by changing bureaucratic, socio-political and regulatory tastes typical of a developing economy. Can you blame them if they were anxious against any threats to their industry's long term viability?
The grey area
These 50,000 or so new registrations are definitely not your one-off personal imports of Lamborghini Gallardos, Nissan GT-Rs, Range Rover Sports and Toyota Land Cruisers from Dubai. Or US-spec Toyota Sequoias, Nissan Armadas or Cadillac Escalades from the West Coast, USA. Besides, these personal imports include pre-registered, pre-owned slightly used units, which qualify for first time new registration with the LTO. This market serves car enthusiasts who are willing to spend more money to own a model that is not available from the local official importers or do not have any local franchised dealers at all.
Back of the cottage
Twenty years ago, any new car registrations of vehicles that were not sourced from the local car makers was attributed to the jeepney building cottage industry. A good number of these were assembled in varying degrees of skill from a mix of new chassis, local remanufactured parts and surplus parts from used and discarded Japanese market vehicles.
Lawmakers to the rescue
A similar situation also affects the truck industry. Since brand new trucks from the Truck Manufacturing Program were found to be too dear, the local trucking industry resorted to buying reconditioned used trucks from Japan. A spate of accidents involving right hand drive trucks, moved lawmakers to ban them from being registered for road use. This did not change the market's attitude as right hand drive trucks continued to arrive in the country only to be converted, cottage industry style, to left hand drive. Problem solved. Or so the lawmakers thought. So while the issue died down, accidents involving trucks did not abate.
The ban on right hand drive vehicles made the country one of the few in the world that made it illegal to drive vehicles on public roads with the steering wheel on the other side. In the Indochinese peninsula, Thai registered right hand vehicles when crossing into left hand drive Laos and Cambodia just change from one side of the road to the other. In Europe, this is not a problem. Hordes of British right hand drive vehicles cross the channel everyday into left hand drive Europe with nary an uptick in the road accident rate. Why? Because its not the location of the steering wheel that cause accidents. Its the driver. Especially, with most local truck drivers being overworked, poorly trained and sometimes driving under the influence of drugs in a futile effort to stay awake, accidents are bound to happen, whichever side the steering wheel is on.
Gone like the dodo
Despite the entry of low-priced Chinese trucks today, the truck market today is almost predominantly reconditioned trucks and the local truck manufacturers are lucky to sell a few hundred new units a year. Thus our truck market mirrors New Zealand. There, they made a decision to dump local vehicle manufacturing, employment be damned and allowed the import of reconditioned vehicles from right hand drive Japan.
Big truck, small market
The result is a very small local new truck market that mainly services corporate accounts. This is because buying habits of the trucking industry is different from the car market. Trucks are commodity, mostly used purely for business and there's no such thing as a premium and luxury truck brand. Everyone has their eye on cost control. Thus the price-buyer instinct prevails.
But observe that the same proprietor of the trucking firm will not think of buying the cheapest for his personal brand new Toyota Altis or Mitsubishi Strada. He drives it with his beloved family, decks it with the latest gizmos, never misses a dealer service appointment, keeps it away from bad roads and cleans it everyday. That is not how he treats his trucks, the business that puts food on his table. Maintenance schedules are extended, drivers are stretched and road conditions be damned as long as he gets paid for hauling goods on time. Trucks are not like personal transport, to be cuddled like pets.
This lucrative supply of nearly new JDM [Japan Domestic Models] vehicles is a result of Japan's culture for perfection. Shinto believes in preserving Japan's natural beauty, so in the name of preserving their environment, Japan requires stringent vehicle inspection after a car's first 3 years. The cost of passing this inspection is so prohibitive that owning a car beyond the 5th year is more costly than buying new. Thus, the prices of cars 3 years or older, despite being in perfectly good condition, are sold cheap. Since it can no longer be resold in the Japanese market, these cars, technically destined for the salvage or scrap heap, are priced like junk.
Salvage, scrappage or sale?
Time was when these cars were indeed salvaged for their parts, but the labor and environmental disposal costs of breaking up a car in Japan was rising. Thus these cars were sent overseas where breaker yards work for less. Sold as is where is, these vehicles, whole and intact, found a huge following in poor countries, whether left or right hand drive traffic, in Africa, Latin America, South East Asia and New Zealand. In the Eastern time zones of Russia, these right hand drive JDM vehicles threatened to overtake sales of left hand drive cars produced in Russia on the distant European side. At one time, China even considered these used vehicle imports as a threat, until China's own auto industry countered with even cheaper home grown substitutes. Some JDMs even made a dent in Great Britain's used car market.
From cult to cult
Locally, consumer groups came out with impartial studies citing that a ten-year old Mitsubishi Pajero, if correctly converted from right hand drive, would cost more than a brand new Mitsubishi Adventure, kitted out to the same rich specifications of options as a Japanese market model. Still the owner jeep buying market saw in Subic a chance to upgrade to ten year old Mitsubishi Delicas, Toyota Prados, Toyota Fourunners, Isuzu Troopers and the Filipino cult favorite, the Mitsubishi Pajero.
By the early 21st century, the Subic imports were already accounting for 150,000 of the country's new registrations of 250,000. It was a matter of time that the Subic imports would run afoul with the local car makers, the law and the safety advocates. Many of the poorly converted Subic imports littered the Olongapo-Gapan Highway while in transit from Port to Auction lot in Valenzuela. Most either broke down or split into two at the point of welding. Still, consumers bought them and did their own post sale rectification work. Later, the Subic importers were to improve their craft as the market was willing to pay a bit more for quality conversions. Several squabbles between court jurisdictions and Executive orders later, the Subic import business was finally laid to rest with the imposition of an import duty on cut up JDM vehicles declared us junk.
Port of entry
When JDM imports started trickling in through Port Irene in Cagayan, the supply of Delicas, Pajeros, Troopers and Prados were already exhausted from the used vehicle auction lots in Japan. Taking their place are Honda Stpwgn, Toyota Noah, Nissan Elgrand and Toyota Granvia. Unusually, these models, unlike the Delicas and Pajeros, were never designed for left hand drive markets so its quite an engineering feat how port side mechanics can achieve conversions to comply with local roadworthiness statutes.
Also available from Port Irene are whole units of 10-15 year old left hand drive VW Golfs, Toyota MR-2, Mercedes Benz SLK sports cars, Porsche 911s, Boxsters and even older BMW 7-series limousines and M3 sports cars. There was also a dwindling supply of left hand drive old Austin Minis and more current Smart Fortwos. Incidentally, left hand drive cars in the Japan are considered a status symbol. They are allowed on Japan's streets for so long as they conform to Japanese type approval regulations on the sweep of the wipers and the anti-dazzle cut out of the head light beams, among many things. Being all left hand drive, these Port Irene imports were in no need of conversion.
It cannot be denied that the used car market and the repair-reconditioning industry has its own contribution to the economy and unique transfer of technology. For example: now that engine computers and fuel injection are the rule for the past 15 years, considerable experience has accumulated in the repair and restoration of these silicon chip powered modules. The recent Ondoy floods gave consumers a choice of going to the authorized dealers who had to order brand new replacement ECUs' from the manufacturers - expensive - or, for 20% of the cost of a brand new ECU, take their chances with some enterprising ECU repair shops, experienced in salvaging electronics using generic IC boards and downloaded programs. Its not a secret that cities and towns are peppered with repair shops that can do repairs for a lot less than the authorized dealers. It remains to be seen if these repairs will last beyond Ondoy's anniversary this year.
Filipino car buyers, almost always a price-buyer, make do with the budget he has and sacrifice safety in the quest for a good deal. On the other hand, the same Filipino car buyer, come that proverbial lucky lottery day, will buy the brand new car of his dreams. But when it comes to buying trucks for business, where luxury and prestige brands are a non sequitur, no profit bonanza will convince him away from buying reconditioned, for so long as his current fleet passes the MVIS [motor vehicle inspection]. To them, buying new trucks with the latest safety and emissions standards are only for multinational companies like Chevron whose fleet of MAN and Volvo tanker trucks pass European Union standards.
New car vs. new registration
Much of the confusion lies in divining the difference between a new car and new registration. LTO's role is to register all motor vehicles in the country, and it matters not if the vehicle being registered is already ten years old from the country of origin. In the case of the JDM imports, they leave Japan as junk and enter Philippine ports as junk, so they are taxed us junk. It leaves the customs zone to be transformed to a living and breathing motor vehicle. If found to be roadworthy, the LTO then is duty bound to register this old used vehicle as a new registrant.
Ownership on paper
Moreover, LTO records on change of ownership registrations are not readily segregated nor available on their websites. Most used car sales done between private parties and buy-and-sell salesmen do not bother rectifying the ownership on the registration papers. Some of these cars are onto their 4th owner while the original 1st owner's name still appears on OR/CR records.
A cursory survey among a few Metro Manila Car exchanges, who probably handle, by their estimate, half of used car sales, suppose that the used car market is easily another 50,000 cars changing owners every year. So for the sake of argument, assume that every year, Filipinos will buy 100,000 new cars and 100,000 used cars. Then consider that the price point of the Port Irene imports give a consumer a choice - for the price of a Suzuki Celerio, the consumer can buy a 10 year old Toyota Granvia. But that's comparing apples and oranges. A young urban professional from Santa Rosa buying a Celerio is not considering a van anyway. And the home based agri-business family in San Rafael, Bulacan is only eyeing a backyard assembled galvanized AUV vs. the Toyota Granvia.
Missing the point
It will be difficult to substantiate as absolute truth that the local brand new car industry is losing a sale, unit for unit, to the Port Irene imports, or to be generic about it, the used car market. The price points are totally different. In fact, Port Irene imports, just like the Subic imports before, are actually squeezing the used car market and not the new car market.
So is it just about price? Ironically, the proof of why a price-buyer Filipino would choose a 10 year old Subic import Pajero over a brand new Mitsubishi Adventure, lies in today's new car market. In fact, he can be made to consider buying brand new. It is a rather inexpensive model that dates back to the 80s which continues to be assembled locally and is still very popular; the Mitsubishi L-300. Used or brand new, its all about the price.