Earlier this month the supreme court (SC) of the Philippines made a final ruling upholding its decision to prohibit the importation of used motor vehicles. The hope is that government agencies will now fully enforce the legislation and lower the number of vehicles being smuggled into the country.
Elizabeth Lee, president of the Chamber of Automotive Manufacturers of the Philippines Inc (CAMPI), told local media, "The final supreme court resolution is a great milestone and an important key to sustaining the strong growth of the auto industry, which is at double-digit growth so far this year. This sends a strong positive signal as it reinforces the growing sentiment for the Philippines as an investment destination for auto expansion."
According to statistics released by CAMPI and the Truck Manufacturers Association, vehicle sales jumped to 18.5% to 95,244 units in the first 10 months of the year, driven by the strong peso, low interest rates and high demand for new car models. CAMPI estimated that over 108,000 vehicles will be sold in 2007, an increase from last year's 97,063.
The CAMPI said in a statement that the SC has resolved with finality the constitutionality and validity of the prohibition on the imported motor vehicles after almost five years of protracted legal battles and there should be no more equivocation or hesitance on the part of government agencies to fully enforce the policies and regulations under the order.
Lee added, "The industry is therefore... strongly urging the Bureau of Customs, the Land Transportation Office and the Subic Bay Metropolitan Authority, among others, to fully implement the import prohibition."
However, many analysts question to what extent the ruling will help reduce the illegal importation of second-hand vehicles.
Future growth for the industry now falls squarely on the shoulders of these government agencies and their ability to eliminate the illegal importation of used vehicles into the Philippines.
According to CAMPI, nearly half of all new vehicle registrations in 2005 and 2006 were for used vehicles. In 2006, there were 174,108 newly registered vehicles, while CAMPI recorded new car sales at 99,541. Those numbers were an improvement from 2005 when there were 175,671 new registrations and only 97,067 new car sales.
"For every smuggled vehicle bought, it is one less vehicle purchased from the formal, legitimate industry. This stunts the growth of the industry. New registrations in 2006 amounted to about 175,000 units of which 99,541 or 57.17% came from the formal sector. Although registration from the informal sector (42.69%) is still significant, there has been a marked improvement relative to 2004, the height of smuggling, when almost 60% of new registrations came from the informal sector. As of today, it seems, the tables have turned for the better," Lee told OBG.
Cebu, a city located in the Visayas region, has become notorious as a prime destination for smuggling luxury and used vehicles. According to the Land and Transportation Office (LTO) in Cebu there were 25,221 newly registered vehicles in 2006 while the Cebu Auto Dealers Association (CADA) only reported 4960 vehicles were sold by legitimate car dealers. CADA said these conflicting records showed that for every car sold by legitimate car dealers, five new cars were registered with the LTO.
Cebu Councillor Jack Jakosalem, who chairs the Cebu City Council's committee on transportation, said the price differences between cars sold on the black market and those sold in dealerships is "so big it would really affect our local automotive dealership market. This must be looked into. This has been a prevailing problem that the government has failed to address."
Ricky Gantuangco, executive vice president of the Professional Customs Brokers Association of the Philippines-Visayas Chapter claimed that giving Customs officials a bribe has become a standard operating procedure in the port of Cebu, allowing car containers to be released without a hitch.
"We have heard the minimum is $702 per official. It's already alarming," he said.
Recently the department of transportation and communication has begun its own investigation into the compliance of the requirements of the vehicles that were issued registrations in 2006.
The local automobile industry will be challenged by the impending implementation of the Japanese Philippines Economic Partnership Agreement (JPEPA). The agreement would eliminate all tariffs on automobiles and automotive parts.
"We are not at all against the ratification of JPEPA. Certainly, what we need is an assurance from the government that our industry will be fully protected once the treaty comes into force. The question is, will the automotive industry close shop because of JPEPA? The answer is no," Lee said at a recent roundtable on the implications of JPEPA.