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Philippine car market is ever-expanding

The Chamber of Automotive Manufacturers of the Philippines, known as CAMPI, recently raised that country's automotive outlook for 2014 to 250,000 from 230,000 originally, including medium and heavy commercial vehicles. This move was to reflect the strong positive momentum in the car market.

But how significant is this growth? And, most particularly, what impact might it have on the Asean region?

The growth is extraordinary. Media reports suggest that sales in the first half of 2014 expanded by 25 per cent. In fact, light vehicle sales have had double-digit increases since 2012. Sales rose from below 165,000 in 2011 to surpass 200,000 for the first time in 2013. The latest model-level sales data in May 2014 suggest a record-high seasonally adjusted annualised rate of 265,000, and the average SAAR in January was 253,000.

These numbers are considerably higher when compared to total light vehicle sales of just below 206,000 in the previous year. LMC Automotive has now adjusted its 2014 forecast for the country upwards by 17 per cent to 241,000, given that the new forecast is still on the upside.

The growth shows motorisation has now begun.

Historically, it has been observed that motorisation of a country starts when that country reaches a threshold of GDP per capita of around US$2,000 (Bt65,000) to $3,000. One of the most obvious examples is the boom in the Indonesian car market, which began in 2010, when GDP per capita registered at $2,900 for the first time. The Philippines reached around $2,800 in 2013, and is expected to further increase in 2014 on sound economic fundamentals.

The CAMPI hopes the market will reach 500,000 within six years. LMC Automotive, however, is more conservative with an expectation of less than 350,000, based on historic fluctuations in the market.

The growth impacts original equipment manufacturers' (OEM) strategies.

It was no surprise to hear an announcement by Mitsubishi earlier this year relating to the acquisition of the old production facilities once owned by Ford in the Philippines. Mitsubishi expects to start operations there from 2015 and, in fact, has set up a new project team dedicated solely to the local operation.

In its new mid-term plan, the Philippines has now become an important hub for Mitsubishi in the region, following Thailand and Indonesia. Mitsubishi is not the only OEM to rethink the positioning of the Philippines in its Asean strategy. Toyota is reported to have strengthened its production capacity there as well, while Honda and Nissan have introduced new models and improved distribution channels. The growth poses an opportunity to expand local production.

As things stand, local production in the Philippines is very limited, with almost 65 per cent of new sales being imports. A free-trade agreement with Asean countries essentially abolished import tariffs from 2010, and another agreement with Korea will reduce the CBU tariff to 5 per cent in 2016 from the current 20 per cent. (Sales of Hyundai Group accounted for 13 per cent in 2013, following Toyota and Mitsubishi at 37 per cent and 21 per cent, respectively).

Trade and investment policies will largely determine how the automotive industry in the country develops. Although it is not unimaginable to see a new investment promotion programme similar to those in place for the eco-car, EEV or LCGC - the existing competing automotive programmes in the region - the current "Industry Road Map" has yet to clarify the details.

Kon Thueanmunsaen is a senior analyst at Asean LMC Automotive. He can be contacted via Konjanart@lmc-auto.com


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