After a period of de-stocking and consolidation from the major car making nations, supply for some models were able to catch up with the increased demand prodding Philippine Vehicles sales growth to correlate to the GDP growth of the economy at 5%-6% for the year. Thus CAMPI is proudly proclaiming another banner year where mid year results are at a 37.1% high. LCV's constituting 65.6% of the vehicle market grew 39.8%. AUV sales grew 27.8%. Passenger cars by 32.2%. Year end projections at a total of 147,000 for 2010 are still short of the golden year of 160,000 in 1997. This bit of good news comes at a time when CAMPI is staging the 3rd CAMPI International Motor Show.
CAMPI cites an improvement in the global economy, a brighter economic outlook, increased business and consumer confidence, stronger growth in remittances, aggressive financing packages, and increased activity by way of several new model introductions.
The Vios Proof?
The best selling passenger car today is the Toyota Vios, up by 47%. It got a big boost when Toyota introduced a very Honda City-like specification of 1.3-liter automatic. Its made, taxes and all, in Santa Rosa, Laguna. I don't blame the government if it wished Toyota exported the Vios from Laguna and perhaps that should be the goal of any remake of incentives that car makers should be granted. But that's getting ahead of our story.
All this is happening amidst a backdrop of several significant trends and shifts in both producer and consumer preference. The local auto industry, is a pillar of the national economy, even if only 147,000 individuals out of 100 million citizens will be driving a new car this year. Including parts makers and the auto industry service and sales industry, the automotive industry directly employ over 200,000 Filipinos, a big chunk of the nation's regularly employed industrial labor force of 5.9 million [out of a total employment of 37 million].
The auto industry has also strong linkages to the marketing, advertising and events industries that provide a boost in seasonal employment. Big banks, like BPI Family and BDO have been powering auto sales. Some 40% of their consumer loan portfolio dedicated to auto finance.
The rapid electronic counting of the recent elections led to an early resolution of divisive politics, leading to a "feel good" factor. People with money are putting forward spending plans postponed by recession anxiety. Even the Overseas workers have bumped up their remittances. Whether there is any sound basis for this feel good factor, people are out spending and financing is easy.
Stock or waiting in line?
Look beyond the year on year, brand vs. brand sales increases and one would discover the fallout/reward for having prepared for the sales boost. Companies who overdid the de-stocking lost out to companies that were nimble enough to ramp up production at local assembly and/or open bigger orders by import L/Cs. No customer itching to spend his cash on his long coveted new car will wait for the dealer to file an order for the factory to make a car that the customer wants NOW, PRONTO! The ingenious marketing ploy of claiming that one's model is selling like hot cakes is because of the waiting list is a double edged sword. It was true in the case of the Fortuner in 2005, where there were indeed supply bottlenecks, but strong brand loyalty to Toyota ensured that customers waited patiently in line, with only a few shifting to other brands who had cheaper pricing and walk-in on the showroom floor availability.
The spoils of the winning bet
This year, the Hyundai Tucson and the Mitsubishi Montero sport, both classified as LCVs and not passenger cars, have been well stocked and top up supplies were not too long a wait. Both Hyundai and Mitsubishi resisted the ploy to ask for a down payment and just told their customers to wait a little while. Some suspiciously view down payments to open Import L/Cs, as a sign of financial weakness.
Moreover, the ready availability of these SUVs have caused a dent in the sales of passenger cars that are not that much cheaper. The models that suffered the most were compact cars as customers were willing to abandon brand loyalty and the compact car category as both the Montero Sport and Tucson offered greater family appeal and value for money.
Luxury cars too
The luxury car sector also reflects the tendency of "feel good" customers to wave their wads of cash to demand their dream car immediately. Against all odds, the luxury car brands that imports the most variety of models are the ones leading sales growth versus the other luxury car importers that stock the fast moving models while other models are available only on order and after giving a downpayment. The time when waiting lists were a badge of savvy marketing and hot demand is now getting a different look: lack of finance to stock inventory.
The beginning year's sales successes of those who stocked versus those who pared down orders and production are now being a given a hard time under the guise of a rushed E.O. 877-A that seeks to "level the playing field". The premise is such that with the hodge-podge of taxes, spotty and contradictory enforcement of collections, unsubsidized power rates and inflexible labor pricing, local assemblers with their big capital investment were disadvantaged by CBU imports from countries that subsidize the export of their "national champions".
Multilateral trade deals
But the whole idea of ASEAN complementation was to have certain models and parts built or made in some countries that match the market size, taste and economies of scale. The whole ASEAN area was meant to trade in parts and CBUs among its different members, similar to the sprinkling of several factories in the 6-state area south of the Great Lakes with Detroit as its hub. Unfortunately, some of the older assemblers in some the ASEAN members configured their factories to produce only for the domestic market where the factory is located. Instead, the business model of these brands had to shift to parts complimentarity with the bigger world market in order to take advantage of the export incentives.
Ford Group Philippines seems to be the business model tailor made for the ASEAN complementation scheme. Most of its products, parts and CBUs are for export which works as the factory makes several models in both right and left hand drive. Ford Group also domestically sells imports from ASEAN, Japan and the USA, the latter countries having no operational bilateral trade agreements with the Philippines that bequeath tariff incentives like ASEAN. Ford's Philippine sales is only a fraction of its export production capacity. Ford's Auto Alliance in Thailand mirrors this.
Mix it up
In fact, all the major brands in that assemble and operate in the Philippines have a product mix of locally produced and imported CBU units. So far, this has been a good mix as the best price, wherever the source of the vehicle is what is good for the Philippine consumer. Honda, Toyota, Isuzu and Mitsubishi lead the way in having a good product mix of imported CBU's and CKDs that are locally assembled.
Cheaper than tax free
Sales leaders like the Toyota Vios, Toyota Innova, Mitsubishi Adventure, Honda City, Honda Civic, Isuzu Crosswind and Ford Escape are all locally assembled. Moreover, their dollar price, inclusive of our local taxes, high cost of power and labor costs, still make these models the cheapest in the world. Locally based foreign institutions that have tax exempt privileges as identified with their 5-digit blue and white "OEV" plates, have taken to buying these models as they are cheaper than a comparable model imported under tax-free status.
Make sense for some
One finds that car brands that have production facilities outside of the working bilateral tariff reduction zones benefit the most from local assembly. Yulon of Taiwan, which owns Nissan Motors Philippines, makes most of its models in Santa Rosa as Taiwan is a long way off from benefitting from any bilateral trade deals with China, much less the Philippines.
Hyundai-Kia and Chevrolet's Korean sourced CBUs should benefit from a Korean-Philippines trade deal, but Korea is wisely prioritizing bigger fish. Korea concluded a free trade deal with the USA and they are about to conclude one with the EU, where the Koreans have considerable car making investments. And the EU, otherwise known as the 27-nation Fortress Europe, is one of the most complicated nation-groups to conclude tariff deals with.
As to Korea subsidizing their car exports, all car making nations do so to varying degrees. The fact that Thailand and other ASEAN nations, including the Philippines, apply tax incentives for car brands to locate assembly and manufacture are a form of subsidy. As for JEPEPA, the bilateral trade agreement with Japan, is not fully operational as the car brands have not been able to use the privileges accorded to it.
Against the World
Making a big splash is the roll out of Nissan's electric vehicle, the Leaf. Though it is promising, in terms of volume projections, any electric car program needs a huge investment in recharging infrastructure. Who will shoulder that? A fiscally strapped government coming out of recession? Which means most if not all the world. Except for China.
No pro hybrid
Even in China, where the market is far more mature in accepting hybrids and electric drive, the government has adopted a laissez faire approach and is not championing any particular kind of clean propulsion, letting the market and technology seek its "market clearing" level. Hybrids are popular but they do not have the advantage of any targeted subsidy, save for the green technology incentive, which also applies to CNG propelled engines and other small displacement economy engines. China's trust in the market proves instructive as its citizens have overwhelmingly voted to ditch motorcycles run by smoky 2-stroke engines in favor of full electric drive using household mains in their big cities as the natural existing charging network.
Big truck country
China, being the leading infrastructure market in the world, is also the biggest truck market. At 900,000 truck sales, no big truck maker can afford not to be in China, despite the strict technological transfer rules and the alleged casual respect to IPR. This mirrors the size of the car market where many world car brands survived the recession thanks to China's expanding car market.
Auman of Foton
China's truck market hosts three of the world's five biggest truck makers. This is why despite the apprehension of world's biggest truck maker, Mercede Benz, it has gone into technical cooperation partnership with Foton for its Auman brand. Auman competes directly with Mercedes Benz in its home turf in the EU. This mirrors what Siemens, another German company is doing in China. Sensing that it cannot compete with the huge Chinese high speed rail companies, some of them using Siemens technology, it preferred to partner with the locals for portions of the contract where its expertise cannot be readily substituted rather than submit opposing bids for the huge infrastructure projects that are continuously being concocted for China's progress.
Indians circling their wagons
India, coming out of its protectionist cocoon is still affected with its profound distrust of most of its neighbors including China. But it is fast becoming a source of automotive products. The Hyundai i10, Suzuki Alto, Suzuki Celerio and even the Audi Q5 are made in India. India slow to get into bilateral trade deals because of its inherent caution against foreign investment.
The last frontier
European car makers, in general, look at Asia as the last frontier and they are going about it in the only way they know; launching very expensive status products to whet the appetites of aspirational consumers. Meantime, the Americans, Koreans and the Japanese are going for the mainstream volume models, the ones that are made and sold in the millions. Volkswagen's success in China seems to be a one off affair as it hasn't gotten anywhere in any other major Asian market. VW's hold on China is constantly being challenged by GM.
Overall, the recent domestic and global trends can all be good for the consumer. Look at what happened to the domestic market? Brand loyalty or loyalty to a category, didn't mean much when the consumer is faced with 1]. competitive financing schemes 2.] excellent product value for money. 3] and readily available stock.
Asia vs. Europe
The Asian buyer is not like the European buyer who places a custom order and waits for the factory to serve his/her order. The Asian buyer wants a package and may the best off the showroom package wins. Any further customization or individual touches are for the huge aftermarket to cater to.
When it comes to this slavish catering to consumer tastes, no one can beat China. And the China market is so big that its swings in tastes and bottom lines affect whats available in the world market. China will be a force to reckon, and this will mean that they are in a position to dictate the terms of trade in any bilateral deal, if they want to do one with small markets like ours or with medium size ones like ASEAN.
Sells and makes
At the recent Auto Focus Industry Forum hosted by Sunshine TV, we asked Mitsubishi Motors Philippines EVP for marketing, Mr. Taizio Furuhashi, what criteria they follow to decide which models are made in Cainta and which models are imported from Thailand, Taiwan, Japan and the USA. His answer was short and sweet: whatever sells and whatever makes money.
Healthy and fair
The continued health of local car sales is led by companies like Toyota, Honda, Isuzu, Ford, Mitsubishi, Nissan and Universal Motors, all of who have that product mix that, sells and makes money. Our cocktail of tax incentives is not perfect, the result of which is that the big car brands chose to invest more in other ASEAN countries. But those who chose to invest here, have benefitted and the satisfied Filipino customer who are pushing sales of locally made cars today.
Each of these successful car makers have their own recipe for success. The styles are different, but the outcome is a level playing field where the consumer is king. He or she will buy local or imported if the product is good and if it is there. To artificially impair the imported CBU product would be unfair to the consumer.
Ideally, China should mirror what our local car industry should look like. Open the product mix available in the market with some locally assembled cars, which we actually make very well and price very well too. Import what we cannot build in big volumes so as to give the consumers good value proposition, so long as there are compensatory businesses with the said exporting country. This is what the bilateral trade deals are for. The national economists who study these deals are presumably working for the interest of the 100million Filipino consumers and not the industrial elite. For those who do not care to do quid pro quo bilateral trade deals with us, then let them languish in the higher tiers of tariffs as allowed by the WTO. Let the good businesses decide what models should be sold here as CBU and CKD.