Safeguard duties to further dampen vehicle sales

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    A Vios gets final touches at the vehicle assembly line of Toyota in Sta. Rosa, Laguna.(File photo)

    With sales not seen to recover to pre-pandemic levels any time soon, the automotive industry is in for another challenge this year: additional tariff on imports.

    As it is, the Chamber of Automotive Manufacturers of the Philippines (CAMPI) sees sales plunging 40 percent in 2020 to about 240,000 units, the biggest drop since the 1997 Asian financial crisis when sales plummeted by 45 percent

    According to Vince Socco, chairman of GT Capital Auto Dealership (GTAD)Holdings, the industry will track the recovery of the economy to pre-COVID, citing economists’ projections that the recovery will be over a three-year period.

    “It is reasonable to expect the automotive market will follow the same timeline,” Socco said in an email interview.

    GTAD is the vehicle for the automotive holdings of GT Capital Holdings Inc. which include Toyota Motor Philippines Corp. and Lexus Manila.

    When asked for prospects of vehicle sales for 2021, Socco said current sales trends would point to a bounce back of 25 percent from 2020 based on the industry’s performance in October and November when sales averaged about 25,000 units per month.

    “If we annualize this monthly sales level for 2021, the market should – mathematically – reach 300,000 units, a bounce back of 25 percent but still about 100,000 units less than 2019 levels. This is not a projection but a sheer extrapolation of current sales trends,” Socco said.

    Socco said consumer financing is one of the biggest drivers in automotive sales but since banks have taken a very conservative view of car financing, this has been a main drag on sales.

    “If banks start to take a more aggressive posture this year, this could be a significant upside to sales,” he said.

    Socco said if economic activity recovers, as projected to about 6 percent this year, this can also stimulate car sales.

    Socco also believes the expected start of campaigning for elections in 2022 could be an added pull in demand.

    This year, compact and small sedans, multipurpose vehicles and sport utility vehicles will continue to fuel sales on sustained concerns on ride-sharing and public transport.

    “The downside, however, is if the evolving new strain of the COVID virus results to a new wave of infections and economic restrictions,” Socco said.

    The additional tariff on completely built-up (CBU) imported vehicles, if imposed, is also
    another disruption to automotive sales.

    “Taxes and duties are commonly passed on to the consumer. Consequently, this could further depress demand as consumers are still in the process of restoring their spending capacity,” Socco said.

    He noted though that while flight to locally-made vehicles is possible, the increased prices on CBU models does not directly translate to import substitution because the product lines are different.

    “A buyer of a pick-up, for example, will not likely buy a compact sedan in its place,” said Socco.

    He said there are a significantly higher number of CBU models versus the three locally-assembled vehicles in the country at present: two compact sedan and one MPV, whose incremental demand brought by the possible shift to Philippine-produced vehicles can easily be served by existing capacities.

    “The reduction in demand from higher prices will probably far outweigh any potential rise in purchases of locally-produced models. The safeguard duties are for a period of three years and car makers cannot invest in additional local production models given this very limited time frame. Any further drop in sales due to increased prices could, therefore, result to upstream (dealer sales, service shops, financing, insurance) labor disruption that will not be compensated by an incremental increase in local production volumes and, thus, job creation in the downstream sector of the auto industry,” Socco explained. (I. Isip)