Over the last five years, the Philippine automotive sector has been growing by leaps and bounds. Every year is another record year topping previous year’s sales by double digit-levels.
Combined sales report by the Chamber of Automotive Manufacturers of the Philippines (CAMPI), the Truck Manufacturers Association (TMA) and the Association of Vehicle Importers and Distributors (AVID) showed robust sales in the last four years. From 184,248 units in 2012, total sales more than doubled to 417,356 units in 2016.
Sales of CAMPI and TMA grew 24.6 percent to 329,300 units in 2016 from 288,609 units in 2015.
Based on the industry’s conservative forecast, sales of half a billion units by 2020 would not be a far-fetched possibility given that CAMPI and TMA chalked up combined sales of 302,869 units as of September 2017. AVID has yet to disclose its sales figures.
Projected sales in 2017 remained valid at 450,000 units with the possibility of a higher reforecast owing to brisk growth with the approaching Holiday season.
In addition, spike in sales is also expected due to the growing public perception that automobile prices will increase as soon the tax reform package gets approved and takes effect in 2018.
Because of the worsening traffic problem, the Philippine government has set the stage for improved mobility, a plan that goes hand in hand with the automotive incentives program under the Trade Department which has slotted the Public Utility Vehicle (PUV) Modernization Program into the third part of the Comprehensive Automotive Resurgence Strategy (CARS).
Mobility via PUV Modernization
The PUV program seeks to replace 200,000 units of old, ageing and polluting jeepneys with hybrid or cleaner jeepneys, buses and similar public transport vehicles.
Fiscal and non-fiscal incentives await five or more participants that will qualify for the program.
The Board of Investments (BOI), though uncertain if it can afford to increase the threshold of incentives of $1,000 per vehicle as given to two approved players under CARS - Toyota Motors Philippines Corp. (TMPC) and Mitsubishi Motors Philippines, Inc. (MMPC) – considers to allocate the remaining P9 billion worth of incentives under CARS to the PUV program.
“We are still reviewing the program in as much as we have not also finalized the number of companies that will be allowed to participate in the PUV program,” said Trade secretary Ramon Lopez.
The PUV incentives package, when crafted, should go to the accredited manufacturers or assemblers of the modern public utility vehicles.
One hurdle that manufacturers need to clear is the capability to meet the 50 percent local content requirement for each and every PUV unit that will be manufactured under the program.
Lopez said that by giving the incentives to builders and assemblers, “we encourage them to produce the modern PUV at cheaper cost and able to pass on the savings to buyers.”
Several autoparts maker have expressed interest to join the PUV modernization program. Among them are five local motor vehicle body builders - Almazora Motors Corp., Centro Manufacturing Corp., Del Monte Motors, Hino Motors Philippines Corp. and Sta. Rosa Motor Works Inc.
In addition, about 8 platform suppliers such as Foton Motor Philippines, Diamond Motors Corp. (for Mitsubishi Motors Philippines Corp.-FUSO), Hino Motors Philippines Corp., Hyundai Philippines, IKK Ichigan Inc., Isuzu Philippines Corp., Philippine Utility Vehicle (PhUV) Inc., and Pilipinas Taj Autogroup Inc. (TATA) have readied their prototypes in hopes of clinching a deal
The government targets at least 120-150 units of modern PUV will ply the streets of Metro Manila, at the onset, by end-2017and additional 350 units by the first quarter of next year for a total of 500 modern PUVs by then.
The 3-year program aims to replace 200,000 units of old, aging and polluting jeepneys in six years with modern, emission-compliant and safe and comfortable jeepney and similar public transport vehicles.
About P9 billion worth of fiscal and non-fiscal incentives should have been awarded to the third player should there be another car company able meet the demands of the program.
The PUV modernization program is a multi-agency program led by the Transportation Department.
Lopez said the additional support the Trade Department will provide the PUV program “is not enough” but will, nevertheless, put extra value into the program.
The Department is also planinng to incentivize the program in as much as counter-funding from Filipino makers are also needed to make the program a viable project.
The Philippines has many suppliers that can deliver the needed spare parts. There are several local jeepney body builders that can provide support to the program.
The numbers have not settled down yet, and still many players spearheaded by the traditional car companies are vying for a slot in the PUV program.
Because of the popularity and utilitarian nature of the ubiquitous L300 cab and chassis, Mitsubishi is hitching in the program using this versatile model.
Mitsubishi vice president for marketing Froilan Dytianquin said Mitsubishi’s mother unit in Japan has approved the proposal of the Philippine unit to re-introduce the L300 model equipped with a new Euro 4 engine.
“Even before the call to upgrade to Euro 4 engines, we already announced that we will be phasing out the L300 model. Right now all locally-manufactured L300 are still using the Euro 2 engine. We have to upgrade now to higher engine specifications to comply with the provision of the Clean Air Act,” he said.
The reengineering process will take about 1 1/2 years, just about the time to enroll to production of class 1 jeepneys that will start in 2018 under the PUV Modernization Program.
Trucks leader Isuzu Philippines, Inc. made known its plans to diversify its production portfolio by taking the big leap into public transport thru the PUV program.
Company vice president for marketing Joseph Bautista said the company is planning to compete in the production of class 2 and 3 categories with seating capacity of 23 and 25 passengers, respectively.
The company will be using the Crosswind platform for the modern jeepneys. Apart from the basic features, Isuzu will also equip the unit with GPS, Wifi and other digital enhancements.
A third contender is Pilipinas Taj Autogroup Inc., the official partner of India’s biggest automotive company Tata Motors Ltd.
Pilipinas Taj is mulling over the construction of an assembly facility in the Philippines that will cater to Tata’s expansion to ASEAN and the Philippines as a major assembly point of Tata commercial vehicles.
Company president Cresencio Fernandez Jr. said the Filipino company will be funding the assembly facility with technical support from Tata.
It has created two prototypes for Class 1 and 2 using the Tata Ace and Super Ace models of Tata.
Unlike the passenger and commercial vehicles, jeepneys and PUVs are exempted from the tax reform bill that extends to single cab chassis, buses, trucks, cargo vans and special-purpose vehicles.
Tax Reform Bill or TRAIN
While the goal of the government is to raise revenue to finance economic programs, most of the industries saw this as an impediment that will slow down if not curtail the growth of these industries, the automotive industry not excluded.
Since the proposed tax reform is a time bomb ticking, affected industries have no recourse but to conform raising suggestions along the way to dilute the original version crafted by the Finance Department.
Based on the Senate version of automotive tax under the Tax Reform for Acceleration and Inclusion (TRAIN) bill, taxes on car priced P600,000 and lower will taxed by 3 percent, which is 1 percent lower than the Congress version.
Dytianquin said the Senate version of or Senate Bill 1592 will generate moderate increase in prices compared to the full implementation of the 2-stage phase version by Congress.
“The 2 percent increase in excise tax will not so much as impact on the price of small cars, which is the mass market being developed by car companies in this automotive age. The Senate version of the new excise tax will actually generate moderate increase in prices if we compare it to the full implementation of the 2-stage phase version by Congress. As there are different versions, we anticipate that a bicameral meeting between Senate and Congress to settle differences,” he said.
For vehicles priced over P600,000 to P1.1 million, an excise tax of P12,000 will be imposed plus 20 percent of value in excess of P600,000 while those priced over P1.1 million to P2.1 million, excise tax will be raised to P112,000 plus 40 percent of value in excess of P1.1 million; and for vehicle with value of over 2.1 million, buyers will have to hurdle excise tax amounting to P512,000 plus 60 percent of value in excess of P2.1 million.
Comparably under House Bill 5636, automobiles priced over P600,000 to P1.1 million will carry P18,000 excise tax plus 30 percent of value in excess of P600,000; those selling over P1.1 million to P2.1 million, will be imposed P168,000 plus 50 percent of value in excess of P1.1 million; for units priced over P2.1 million to P3.1 million, excise tax will be P668,000 plus 80 percent of value in excess of P2.1 million; and for those priced over P3.1 million, an excise tax of P1.468 million will be imposed on top of 90 percent of value in excess of the units price.
Dytianquin said the added tax will not result in revenue loss since it will be passed on to consumers.
“There are numerous factors that could affect our customers. They may simply opt to go for a lower variant or a lower model, or they may choose not to purchase a new vehicle at all, their preferred model being out of their reach. This means that any potential revenue loss because of customers dropping from high-end models might find themselves behind the wheel of a lower-end variant. Not only that, if consumers decide to rush their purchases before the excise tax is to take effect, there will simply be fewer people to purchase new vehicles next year. This makes it almost impossible to get an accurate or even a baseline expectation of the possible loss.,” he said.
The segments that will bear the brunt of the automotive tax hike are the premium SUVs and MPVs. Sales of low to mid-grade variants of these vehicles are seen to continue to increase as they will be backed by vehicle financing.
Despite the unease caused by the proposed tax measure, the industry expects sustained vehicle growth.
“The economy has progressed to the point where people simply need vehicles and there are many moving up in economic stature. More and more people will be able to afford brand new vehicles due to affordable financing made so by lower interest rates. Immediate effect will probably result to temporary slowdown as the market adjusts to new vehicle prices especially on higher priced vehicles such as SUVs, MPVs, and pick ups. However, market is expected to recover after a few months as it accepts the new prices,” Dytianquin explained.
He added that in the long term, a change in vehicle preference may happen especially if the value for money proposition will improve in other segments.