Yearender: Local auto industry’s growth slows in 2008

Published by rudy Date posted on January 6, 2009

A government bailout for the Big Three US automakers, the world’s leading carmaker Toyota suffering its first loss in 70 years, and weak sales in the European market. With big players in mature markets in trouble as a result of the slowdown in the world economy, is the Philippine auto industry not far behind?

For 2008, industry insiders are already predicting auto sales to grow much slower than the 18-percent expansion last year, decelerating further to single-digit rate in 2009.

The Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI), the umbrella group of the country’s leading motor vehicle assemblers, however, says the local industry is better off than the American and European markets because growth, albeit small, is still expected.

CAMPI president Elizabeth H. Lee notes the industry is even on track to meet its yearend sales target. “The local Philippine auto industry, however, is still cautiously optimistic as it may still reach a yearend sales volume that will show the highest sales in 11 years. With the availability of credit in the market, buyers continue to buy but have become more scrutinizing in the purchase of vehicles. Competition remains stiff.”

Despite a marked sales slowdown in November due to restraints in supply and the spillover effects of the global financial turmoil, CAMPI data reflect an 8.3-percent sales buildup in 11 months with 114,564 automotive units sold.

Local automakers have forecast 2008 sales volume to reach 125,000 units, the highest since the Asian financial crisis in 1997.

“The Philippine auto industry’s year-to- date growth rate is a stark contrast to that of the largest auto market — the US — where November auto sales plunged another 35 percent, the lowest in two decades,” Lee notes.

She adds the group expects to rev up sales going in the fourth quarter, when seasonally, more cars are sold. “Actually, the last quarter is one of the stronger quarters. Hopefully, the global meltdown is not going to hit us that hard.”

But Lee admits that the coming year will be more challenging than 2008 as the group projects growth to crawl to only between two to four percent, adding that car companies must be able to maintain their inventory in order to achieve optimum cash position.

“Matira ang matibay (It’s a survival of the fittest),” she stresses.

Toyota Motor Philippines (TMP), the biggest car seller in the country, has already announced it expects zero growth in car sales next year as the slowdown in world economy resulted in a global decline in the demand for cars.

“We will have flat growth for next year,” says TMP vice president for corporate affairs group Rommel T. Gutierrez, adding that this will likewise mark the first time Toyota will fail to post an increase in local sales.

Another Japanese automaker, Isuzu Philippines Corp., expects worse, as it sees negative growth, or a contraction in sales, next year – its first such performance in over a decade.

“This year we are on track to meet our target of selling 10,000 units. Next year it will be a little less than that,” Keiji Takeda, Isuzu president, says.

However, CAMPI stresses there is no need to panic as it affirms the industry is healthy in spite of the contraction in car sales in the US and Europe.

Lee points out the US market is heavily saturated with a ratio of 800 cars for every 1,000 people. Here, she notes, the ratio is 22 cars for every 1,000 individuals. “There is a large growth potential.”

She says people who already have cars may think of holding off buying additional vehicles, but those who do not have one will still buy.

In addition, Lee says overseas Filipino workers (OFWs) who decided to come home permanently will need to be dual-income earners. As such, she says these people will set up their own businesses and become entrepreneurs, an emerging market that can be tapped by the auto industry.

 Another reason why the situation in the United States will not happen in the Philippines , she explains, is because majority of Filipinos do not depend on credit. “Here, we do not borrow as much.”

Yet in order to insulate the country from the ill-effects of the financial turmoil, CAMPI officials stresses the government must lay down specific measures to deal with the looming slowdown of the economy.

“The government still has not made any substantial statement,” Melchor R. Dizon, CAMPI vice president, says.

According to Dizon, the government must assure the public that it is working to cushion the country against the global financial crisis, especially since experts have predicted a slower 2009 for the Philippines .

Dizon notes businesses remain very concerned.

“It is now a confidence problem,” he says.

“The government and the private sector should work hand in hand. The efforts of the industry must be augmented by moves of the government,” he adds.

An international study has pointed to incompetent government policies as one of the major reasons why the local auto industry has been overtaken by neighboring Southeast Asian countries, particularly Thailand.

The study traces the root of the problem of the auto industry to the poorly designed and poorly implemented social contracts.

The ireport made by Ferdinand O. Maquito, a visiting researcher from the Japan-based Sekiguchi Global Research Association (SGRA), states that the problem in the auto industry can be solved by creating a special body that will closely monitor the performance of the sector and the amount of support given by the government.

“There is no close coordination between the government and the industry,” Maquito said.

He says automotive companies prefer to invest in Thailand because the Thai government closely works with the industry. “Our research showed that the car companies in Thailand were always approached by the government.”

 In the Philippines, meanwhile, Maquito says the government is only giving incentives to encourage investors to come in.

“Usually the government gives one-shot deals but there is really no clear guidance from the government,” he notes.

 Maquito points out they are studying how the government can give more perks to companies that are producing more cars in the country.

Aside from giving more perks, he says frequent revision of programs by the government tend to confuse both potential and existing investors.

“The government keeps changing the rules in the middle of the game,” he says. “Worse, the industry players are not consulted every time there are changes.”

Still another reason why auto companies are reluctant to enter the Philippines is the country’s sensitivity to macroeconomic shocks such as political disruptions and the perceived instability of the government. –Ma. Elisa P. Osorio, Philippine Star

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