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Into Overdrive: The Rise of the Motoring Industry

In 2015 alone, there were 2,000,000 cars officially listed in the country. This means that 2,000,000 cars more or less are on the road on a daily basis, with the majority concentrated in major cities like Cebu, Quezon City, and Bulacan. Aside from this, the number of motorcycles are also on the rise. 

Given a not so reliable public transportation system, most citizens opt to purchase their very own vehicles in order to avoid spending hours in line for the MRT system or running after other forms of public transportation without much success.

Spending power is higher than ever, and now, more and more Filipinos are investing in their own vehicles to travail the streets of the country.

Motorization and the economy

Increase in car sales is a trend in Southeast Asia, particularly in the Philippines. Today, owning a vehicle is already accessible even to the most common man. What used to be a luxury is now a commodity in the country owing to the many affordable packages and units that one can choose from.

And the increase in the number of cars is a direct indication of how well the country is faring. In fact, an increase in the Gross Domestic Product of the country greatly affects the demand for motor vehicles. The term for this is called motorization. Which means that the higher the GDP, the greater the chances of citizens being able to afford and buy cars. A trend that started in 2013, the Philippines is expected to be a part of the third wave of motorization in ASEAN.

In the first quarter of last year alone, sales have increased an impressive 19.3% with the industry selling a total of 18,662 units in the first month of last year, a huge jump from the previous year. 

To better understand motorization, it is also best to understand the trend between GDP Per Capita and the level of car ownership and how it relies heavily on a country’s economic development. A country with low GDP per capita has proven to have a similarly lower level of car ownership because only a few people can afford cars. Countries with a large population ideally improve public transportation and infrastructure so the need for cars is lessened. In emerging markets like the Philippines, the development may not be as fast as expected so the only way for people to be able to move around is to be purchase vehicles on their own.

The IMF recently projected the growth of GDP in emerging markets like ours will be higher than in developed countries within the next five years. This means that vehicle ownership will accelerate because we are about to reach the maximum GDP and this growth will greatly affect the motoring industry.

Bigger Purchasing Power

It is clear that the economy is booming. The growth of the middle class family has bolstered the Philippines automobile industry showing a stellar performance in the past years. In fact, in 2014 alone, The Asean Automotive Federation cites the Philippines as the fastest growing automobile market in the region ahead of bigger giants like Singapore, Malaysia, Indonesia, and Vietnam, something that can be attributed to stronger consumer purchasing power, rising investments, and even easier financing.

Easy auto financing deals are contributing greatly to the surging sales of motor vehicles, specifically private cars. Gone were the days when it would take forever to be able to get a car loan. Today, the increasing availability of loans, especially to the middle class, are proving to be the main source of enormous growth in the automobile industry.

Motorization has truly begun in the country. And a huge potential growth still remains with more and more people owning more than one vehicle to avoid the vehicle number coding scheme of the country.

More and more middle class citizens are also purchasing more vehicles in order to join car services like Grab and Uber in the hopes of a better income. This has proven to positively affect the sales of cars in the country.

The Effect of Motorization

Motorization in the country is exciting without a doubt. The good news is that there will be a boost in the automobile industry that will lead to more jobs in industry related to the automobile industry. It will greatly affect the assembly industry while at the same time encourage growth in basic industries such as petrochemicals, textiles, chemical, rubber, iron, steel. Component manufacturers will be affected as well and other supporting industries. This is the good part about motorization. It will greatly affect all the other industries.

However, in a country such as ours, and in the current state of traffic, one can’t help but ask how the country’s roads will be able to sustain and accommodate all the cards on the road.

And while this is currently a challenge, it also places a sense of urgency because with the increasing number of cards on the road, it’s important for the government to move fast and quick in taking care of the public transportation system.

Movers in 2015

New models and new brands came into the country in 2015. Many events launching new vehicles and brands occurred last year, further boosting the excitement for an already energetic automotive scene.

Pick-ups still took the centerstage on the scene with the launch of the Nissan Navara and Toyota Hilux. The updates of the Mitsubishi Strada, Ford Ranger, Isuzu D-Max 3.0 and Chevrolet Colorado Tracker Pro boosted car sales in the country.

Another area that gained traction is the PPV segment, which is the pick up based passenger vehicles battling over the SUV. Ford was the first one to release the new Everest while Isuzu released the MuX. Mitsubishi also released Montero Sport. Toyota is expected to come in with a new model for the Fortuner this year as well.

The industry also welcomed new brands such as Mahindra which made waves when it bagged the PNP patrol vehicle contract with its Enforcer rugged SUV. 

Lotus soon arrived a few months after offering British engineering in the form of the Elise, Exige, and Evora sports cars. Aston Martin also arrived in the country, fueling the surge for expensive cars even further.

Looking Ahead

The Philippines is expected to be a major automotive market in Southeast Asia by 2020 as domestic sales are expected to grow even more in the next four years. This will also work hand in hand with the government’s Comprehensive Resurgence Strategy program.

Local industry players expect to see the Philippine automotive market bringing in more sales, accounting for about ten percent of the total vehicle sales in the region by 2020. Sales of the automotive market are expected to reach at least 5-6 million units by the year 2020 following other leaders in the region such as Thailand and Indonesia.  

Acceleration

The steady growth the industry has experienced in the past five years alone show just how strong the market is.

It may be recalled that in 2010, only 168,000 units were sold. In comparison sales in the first quarter of last year alone was pegged at  269,000. This year, they are expected to reach at least 350,000 units. Despite the big numbers, low car ownership ratio, favorable demographics, and rising incomes indicate high potential that has not been tapped and can still lead to further growth. 

One area where the Philippines is still poised to soar is that of locally produced vehicles. In the last year, locally produced units were only at 83,874. This is small in comparison to Thailand’s 1.6 million units and Indonesia’s 1.1 million units. However, industry players believe that the improvement of the CARS program will encourage the local assembly of automotive vehicles.

The Board of Investments also issued the implementing rules and regulations for the CARS Program. This program will allow two prospective local car assemblers to apply for fiscal support not exceeding P27 billion by locally assembling three vehicle models or P9 billion per model with a commitment to produce 200,000 units for each model during its six-year model life.

The CARS program is expected to be the lifeline of the struggling local auto parts making industry. It’s the surge the local industry has been waiting for awhile.

This will increase the local auto assembly and production of an average of 100,000 units per year which doubles last year’s production. This will also greatly affect the local auto parts makers. This surge will definitely update the industry and greatly affect the local industry. A surge in the local industry is expected to also surge the local economy bringing in even greater expectations for the industry. 

Looking at the numbers, truly the best is yet to come for the industry.

Topics: Into Overdrive , Motoring Industry
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