An auto boom is coming

Domestic car manufacturers are raising their sales targets. Originally, the industry projected sales of just 137,000 units, an increase of a sluggish 3.4 percent over the 132,444 units sold in 2009. They see a boom coming.

In the first quarter, sales zoomed to 38,709 units, a hefty 35.5-percent increase from 28,563 in January to March 2008. In March alone, sales rose 33.8 percent to 14,373 units from March in 2008.

Between February 2009 and March 2009, the increase was 14.3 percent, which if annualized or multiplied by 12 (months) translates into a 171.6-percent gain.

The 35.5 percent year-on-year quarterly increase of 35.5 percent if divided by three months shows an average increase of 11.8 percent per month.

Therefore, the trend seems to indicate a minimum increase of 12 percent and a maximum of up to 172 percent. This means auto sales could chalk up to 148,337 units (up 12 percent from 132,444 units in 2009) or more than double (a 100-percent increase) to go past 265,000 units this year. With these indicators, a 50-percent jump in sales to about 200,000 units doesn’t seem very aggressive.

The highest industry sales were in 1996 when 160,499 units were sold. Very likely, that record will be exceeded for the first time in 14 years this year. That assumes a growth rate of 21 percent, which seems highly achievable. In fact, Mitsubishi Motors, the second biggest seller, now projects a sales growth of 20 percent over 2009. Ever conservative, Toyota sees an increase of 10 percent.

“The strong first quarter result augurs well for the whole auto industry,” says Campi President Elizabeth Lee. “We will have to revise our original forecast upwards given the first quarter trend. We are looking forward to continued strong sales in the coming months compared to the same period last year.”

She adds: “2010 is looking to be a pretty good year for auto. It is an exciting year most especially for buyers with many new models to be introduced within the year as well as the upcoming and much awaited Campi Philippine International Motorshow to be held on August 19 to 22 this year.

Why the boom?

First, the economy is taking off. After a paltry 0.9-percent growth in 2009, the economy is poised to score a tripling in growth rate to more than 3.6 percent, or even 4 percent. The momentum is not likely to be disturbed even with a new president. The Manila-based Asian Development Bank assumes a smooth transition with the presidential and legislative elections and that the new government will pursue a credible economic and fiscal programs. That can only mean good news.

Second, people have money. “I have a lot of friends. They have money but don’t know where to put it,” relates Ramon Ang, the president and COO of San Miguel Corp. (SMC). This finding prompted him to prod SMC to issue a P38.8-billion float, which was oversubscribed, and Petron Corp. to make a P10-billion (up from the original P5 billion) preferred share offering, which again, was oversubscribed. “My bankers told me it could not be done—a huge bond float and a large preferred share offering,” Ang smiles.

Third, remittances remain strong. They will amount to $18.3 billion this year. The Bangko Sentral ng Pilipinas (BSP) expects a 6-percent increase in remittances this year. Remittances, in turn, will underpin a strong private consumption over the next two years, says ADB, along with a firmer labor market and stronger consumer confidence. OFW remittances will hit $18.3 billion this year, up 6 percent. About half of the $18 billion will be saved; 7 percent is spent on vehicles.

According to BSP, of the 534 OFW households it surveyed, they allotted 50.4 percent of remittances to savings in the first quarter 2010, up from 44.8 percent in Q4 2009. This means idle money, equivalent to $9.15 billion, or P441.5 billion (at P45 to $1). About 30 percent of remittances were spent last year on consumer durables (like appliances) and 6.7 percent on vehicles. Now, 6.7 percent is equivalent to a whopping $1.22 billion, or P55 billion.

“OFWs are a big contributor,” says Danny Isla, the president of Lexus Manila and vp of Toyota Motor Philippines, “they pump-prime the econo-my and their spending habits generate the boom.”

Fourth, the lingering effects of last year’s Ondoy devastation have spilled into bigger auto demand. An industry leader estimates up to 100,000 units need to be replaced. “Many old units still have to be rectified,” says Toyota’s Isla.

Fifth, nearly all the auto companies are conducting aggressive sales promotion with new car models and zero-interest financing. “Even the luxury brands are offering zero financing,” notes Isla. Finally, business and consumer confidence are at their two-year high. There is an overall sense of buoyancy.

Campi’s Lee says auto sales for this year will be driven by election spending, fleet deliveries to national and local government agencies and higher remittances from overseas Filipino workers. She also cites stronger growth of entrepreneurial trend, business expansion, and strong and aggressive financing environment as important factors boosting vehicle sales. –TONY LOPEZ, Manila Times

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