The Philippine automotive industry is revving up speed in the fast lane, having landed third fastest in terms of sales among ASEAN countries in 2015 and the second most aggressive manufacturer in the region posting a production rate of 11 percent.
By and large, the industry has seen robust growth, averaging 23 percent in the last three years.
Based on data compiled by industry groups Chamber of Automotive Manufacturers, Inc. (CAMPI) and the Truck Manufacturers Association (TMA), automotive sales posted faster growth of 22.9 percent to 288,609 units in 2015; 29.5 percent to 234,747 units in 2014; 16 percent to 181,283 units in 2013.
It was not always a rosy path for the industry, though. In 2011, sales slipped 4 percent to 141,616 units from 147,488 units in 2010. It turned around after sales hit 156,649 units, up 11 percent in 2012.
Since then, industry sales accelerated to higher double digit growth. Industry sales as of August 2016 grew 40.1 percent to 32,472 units, from 23,181 units in the same month in 2015.
Total industry sales from January to August 2016 hit 229,919 units, 28.3 percent growth over 179,215 units in the same months in 2015.
Just recently, CAMPI revised industry sales forecast for the year to 370,000 units from 360,000 units, after first semester sales accounted for than half the target volume. In 2015, actual sales went beyond the forecast of 272,000 units.
CAMPI president Rommel Gutierrez expressed high hopes for the industry and said motor vehicles have successfully weaved into the lifestyle of the Filipino people, not as a bragging right but as a necessity for those who are always on the go.
“It (vehicle) has become a necessity already. Not only because of the traffic situation but because people can actually afford to have one these days. At the end of the day, that is what most of us want, to have our own car,” he said.
At the rate things are progressing, production is likely to go up, more motor vehicle will ply the roads and 60 percent of the boom will be in Metro Manila, he predicted.
The Philippines is close to reaching the “motorization threshold” of $3,000 per capital income, close enough to conclude that the first motorization phase has cleared the way for the second wave.
CAMPI manages indsutry sentiments and other relevant concerns. It comprise about 90 percent of the Philippine automotive industry.
Japanese technology
Dominating the local car industry are the Japanese auto makers. The country’s 3 leading Japanese automotive players – Toyota Manufacturing Philippines Corporation, Mitsubishi Motor Philippines Corporation and Isuzu Philippine Corporation – have rallied to make available the highest level of Japanese technology.
Toyota president Satoru Suzuki says the company’s growth has contributed significantly to the car industry sales.
“I believe that growth is sustainable in the future. While the economy continue to show good signs, the new government gives up hope it can support a fast growing economy”, he said.
Toyota managed to maintain market leadership, dominating the entire Philippine automotive sector.
Data prepared by Mitsubishi showed how major Japanese players performed in the last three years with Toyota and Mitsubishi leading the pack. The rest of the players – Honda Motor Philippines, Mazda Philippines, Isuzu, Nissan Philippines, Suzuki Philippines, Hino Motor Philippines Corp. and Subaru Philippines – have also, undeniably increased their share, albeit a bit slow, year-on-year.
Mitsubishi vice president for marketng Froilan Dytianquin said the popularity of Japanese cars in the Philippines stemmed from the resiliency of Japanese automobiles during the crisis of the ‘80s.
“Until now the share of Japanese-made vehicles are still higher given the strong affiliation to Filipino users and its established perception og being high-quality, high-tech, durable and easy to maintain,” he said.
Despite competition growing neck-to-neck with the rest of global technology catching up and even surpassing Japanese technology, car makers in Japan have never been complacent and have been reacting to offer of non-Japanese made vehicles.
“Japanese vehicles have maintained the image of having high quality, reliable, durable and easy to service. New technology introduction on vehicles are now becoming a trend for non-Japanese to attract the market especially for the millennials. Japan brands are not really behind on this new technological features but rather are ensuring that these features will meet the requirements of the target market and its performance will carry on until the lifespan of the vehicle,” Dytianquin said.
Japanese cars are a powerhouse brand in the ASEAN, the company’s third biggest Japanese car manufacturer Isuzu said.
“If you remove the Japanese cars, there will be no indsutry to speak of. They have strategically positioned themselves in the ASEAN. Like Isuzu for intance. We have our engines manufactured in Thailand and Indonesia, transmission from the Philippines. There is brand to brand complementation,” Isuzu marketing manager Joseph Bautista said.
Growth potential in the Philippines is high, he said reiterating a previous observation. Per capital consumption it at 40 vehicle per 1,000 people compared to Malaysia and Thailand’s per capita consumption ration of 200+:1,000.
As of July 2016, the Philippine market share of Japanese vehicles is at 77.7 percent.
Bautista noted that Japanese vehicles have grown to dominate the Philippine market so much that “wecpredict that it will continue to be strong preference in the future.”
Korean challenge
Korean cars have always been the challenger brand. The brand, with its ups and down in sales and growth, have always managed to ricochet back to the game.
The Association of Vehicle Importers and Dealers (AVID) attributed the oscillating performance to the lag in distribution and unavailability of models.
Despite lacklustre performance in the past, group member companies registered 103 percent growth or an incremental output of 45,420 units sold in the first half of 2016 from 22,371 in same period of 2015.
The report also showed that second quarter 2016 sales alone expanded by 74 percent with 24,260 units sold compared to 13,296 units sold in the same period in 2015.
Group president Ma. Fe Perez-Agudo said the Filipinos penchant for Korean cars is basically due to a long list of models avaialble as well as the entry of new, innovative, and reasonably-priced models. The trend is likely to persist for the rest of 2016, she added.
Hyundai, the leading Korean brand, sold a total of 19,336 units, or 54.8 percent growth.
“We are proud to say that Hyundai has made “premium” or quality mobility accessible to the Filipino motorist. We strive to make our brand always relevant to our customers’ lives. In terms of design innovation, the introduction of the “Fluidic Sculpture” design philosophy in 2009/2010 was a decisive breakthrough for Hyundai as a global top-tier brand. The European and nature-inspired design concept gave a refreshing look to the conventional “boxy” car design. Note that, in the succeeding years, major Japanese brands incorporated our signature fluidic lines in their product lineup,” Agudo said.
Korea has limited players in its own automotive space. Almost every Korean car brands are already in the Philippines – Hyundai, Kia, Ssyangyong and Daewoo.
Market acceptance for Korean cars has never dampened, despite issues on delivery and availability, said KIA Philippines president Ginnia R. Domingo.
“Nowhere in the near future do I see it (sales) slowing down, barring any civil unrest. The designs are all new and acceptability is on all-time high. The growth has been positive for us. All the big Korean players are here. Hyundai and KIA alone, comprise 89 percent of Korean car brands in the Philippines,” she said.
After it has retired the very popular Pride, KIA is now setting to motion a semi-processing operation where it will build the rear portion of the new K2700 commerical truck, in its Sta. Rosa facility, sending hints of a desire to possibly go into assembly or local manufacturing.
The company is growing in the last four years in sync with industry growth.
The “aspirational brand”
For many Filipinos, owning a European car is still aspirational. The look, the lines and curves, are to die for, so it has been said. One gets easily distracted when seeing a Euro car on the road.
European vehicles, despite its miniscule share of the local automotive market, have contributed not only to mobility of the affluent but to the image of the Philippines as a fast growing automotive market, as a fast growing economy where the middle class has hopes of, one day, going up the bracket ladder and affording one European vehicle.
Euro car expert Ayala Automotive president and CEO John Philip Orbeta said there was never a dearth of European car models in the Philippines.
“Euro cars are amply represented in the Philippines, but the dilemna is the price point. If the government can level the playing field, then all of a sudden, Euro cars will be 30 percent more affordable,” he said.
The duties hurdle continues to be a concern for European car makers. Original equipment manufacturers (OEMs) are taxed 30 percent for bringing in European vehicles.
There is a fresh effort from at least four European car brands in the Philippines to include automotives in the ongoing free trade negotiations between the Philippines and the European Union (EU).
Back in the 60’s and 70’s, German automobile Volkwagen used to be the biggest brand in the Philippines before Toyota. Ayala Automotive exclusively imports and distributes Volkswagen in the Philippines.
Volkswagen used to manufacture the Beetle and “Sakbayan” (Sasakyan ng Bayan) which was the first Asian utility vehicle.
“The Euro car segment, admittedly, is a niche market. Economic growth is vital for this segment to likewise grow. We see the segment growing as we ourselves at Volkswagen, we too are expanding,” Orbeta said.
The European car segment share in the Philippine automotive industry is 1 percent.
Catching up
Chinese cars have never been an active challenger in the sedan and commercial category, Dong Feng Automotive Inc. chairman Francis Chua said.
“The contribution of Chinese in terms of car sales growth is miniscule, But it is very active in providing solutions for light to medium transport equipment such as those for construction, mining and dump trucks. This is where China is more competitive,” he noted.
In a market for over 300 vehicle manufacturers, Dong Feng in one of the five biggest players in the Chinese automotive market. Government-owned, it was brought to the Philippines by the Chua Group not less than 5 years ago.
Just like European vehicle, there is no active production of Chinese motor vehicles in the Philippines. Every unit is brought in ss completely built-up (CBU), said Chua.
So far, there are about a dozen Chinese brands competing in the Philippine automotive market.
In terms of quality, Chua assured that major brands have technologies comparable to leading global brands.
“But they also learned that a car cannot last forever. Consumers have to change cars, whether they like it or not. All Chinese except for the big ones have adopted this thinking to try to come up with something affordable and competitive. Something that is built not to last forever but at least in that few years, its service life is used up well enough,” he said.
For the Chinese to invest in automotive manufacturing in the Philippines, he added, the Philippines should institute reforms that will level the playing field between big and small manufacturers.
Trends
In the last two years, small cars have been trending as evidenced by the abundance of new models in the showrooms and on the road.
Almost all local automotive players agreed that small cars is a popular trend. But aspirations for bigger units, especially for second-time buyers has also led to the rise of small SUVs.
“The manufacturers are actually adapting to the demands of consumers. Two years back , the B segment flourished. These are the compact cars like the Vios, Accent and the small sedans. Just recently the A segment which are the small cars such as the Picanto, Wigo and Mirage trended. And then a new segment was born in the Philippines which was the BSUV. These are small SUVS the likes of Ecosport of Ford and the Suzuki Vitar,” said Domingo of KIA.
She noted the Suzuki’s Vitara may have pioneered BSUV in the Philippines a long time ago, “but the market was not ready yet.”
“We see that the pattern will be buyers buying the compact or small cars but then they will upgrade to SUV, pick-up or AUV,” said Bautista of Isuzu.
SUVs getting the attention of many car owners and buyers not only because of the looks but also resiliency on the road – defying difficult terrains and braving unconventional weather conditions.
In the Philippines 1 out of 5 vehicles are SUVs. The Philippine market has grown a liking to SUVs because of road conditions and the weather that can be harsh and punishing.
Mitsubishi noted that all the Japanese companies have been posting consistent growth, especially those at the top of the market. Though peculiarly, one can note the varying market share, showing how volatile the market is.
Other current automotive trends are focused on driving aids/technologies that will not only make driving easier and pleasurable but also safer for both driver, passenger, and pedestrian. This is now slowly being introduced to newer models being marketed in the Philippines.
Another automotive trend will be going to alternative fuel vehicles such as electric, plug-in hybrid electric, or hybrid. Once these vehicles become affordable then it will be part of the mainstream models as well.
Conducive environmet
According to government experts, the Philippine automotive market has been experiencing unprecedented growth in the last five years with compounded growth rate of 14 percent and year-on-year growth of not less than 25 percent.
“The increased consumer spending fueled by the remittances of Overseas Filipino Workers (OFW); the increasing gross domestic product and the favorable macroeconomic conditions supported by the stable monetary policy boded for the local automotive sector,” said Board of Investments (BOI) director for industrial policy Corazon Halili-Dichosa.
Expanding product range and aggressive marketing promotions to cater to changing customer demographics, is a strategy among car sellers to help expand sales.
Attractive car financing packages have also helped fuel the booming sales. The auto industry has benefited from low interest rates in the last five years.
Data from Bangko Sentral ng Pilipinas show that total auto loans doubled from P135 billion in 2011 to P267 billion in September 2015
Dichosa mentioned that the upcoming 6th Philippine International Motor Show (PIMS) is another platform to increase awareness and showcase new models that cater to the demands of each customer segment. PIMS will be held on September 14 to 18 at the World Trade Center in Manila.
Far from reaching saturation point, the country’s automotive market has high potential for growth, Dichosa said.
The objective of the auto industry is to tap this market potential and increase production volume as well as localization in the country, she said noting that the Philippine supplier base is smaller compared than other production sites in the region, therefore a limited localization rate.
This situation, forces manufacturers to import their production requirement that adds to total cost.
Despite, these surmountable choke points, the government sees auto manufacturing highly crucial to the country’s manufacturing industry. It could drive growth that will cut across the entire suppply chain, elevating all other processes and making even the most simple process relevant as this will create additional manpower requirement which is good for the job-generating efforts of the government.