Philippines auto sector moves up a gear

The automotive sector in the Philippines is on track to break all records for sales in 2014, as rising demand and relatively low ownership rates means there is room for extended growth in the market. But delays in the launch of a government support scheme for the industry could hold back investments.

The industry has posted a series of record-breaking sales in the first half of 2014, a performance that seems set to continue into the second half. July saw a new monthly high of 20,730 units sold, the Chamber of Automotive Manufacturers of the Philippines (CAMPI) announced in a statement released on August 11. This represented a 32.1% increase on the same month in 2013 and took overall sales for the year to 129,687 units, 26% up on the seven-month total last year.

The July results follow on from a strong showing in the first six months of the year, with sales of just over 108,957, up by almost 25% year-on-year. The strong first-half performance prompted CAMPI in July to revise its outlook for unit sales from 230,000 to 250,000, well up on the 2013 total of 212,281.

Though this acceleration drove the Philippines to first place in terms of the pace of growth within the 10-member ASEAN bloc, the actual size of the domestic market was limited, according to the ASEAN Automotive Federation. The federation said motor vehicle sales jumped 2% between January and June, however, the total market only accounted for 6.8% of sales within the bloc for the first half of this year. Domestically manufactured vehicles account for just 2% of total ASEAN production.  

Growth potential

Rising sales and ownership rates are growing from a relatively low baseline. Market research firm Nielsen underscored the potential for growth in the Philippines, reporting that 47% of households in the Philippines do not own a car, compared to just 7% of households in Malaysia.

While ownership levels are low, this could change over the next few years. Nielsen’s report, issued at the end of April, showed 76% of all respondents saying they were planning to purchase a vehicle within the next two years, well above the global average of 65%.

Though perhaps optimistic, CAMPI has predicted annualised vehicle sales will hit 500,000 by the end of the decade, thanks to rising disposable incomes, though other forecasts are slightly below this, coming in at 350,000. Even at the lower end of projections, manufacturers, retailers and suppliers can all look to returns accelerating over the coming years.  

Stalled roadmap

Though the outlook for the sector is bright, the government is still working to develop its long-term roadmap for the automotive industry, which it says will help develop capacity so the sector can make a significant impact on the export market, as well as boost the components segment.

The automotive sector is already one of the major contributors to the Philippines economy, accounting for 12% of industrial output and 4% of GDP, according to the National Statistical Coordination Board. Both the industry and the government believe this can be increased through policy initiatives, incentives and investments.

The blueprint was supposed to have been released in the first quarter of the year, but was pushed back as the government sought additional input from the sector and other agencies. In mid-August, Gregory L Domingo, the secretary of trade, announced the roadmap would contain incentives for producers, but only those that could make significant investments of at least $60m in their assembly lines so as to develop export capacity while also expanding components output.

The criteria for state support would be two-fold: volume and capital investment. “What we want is to limit this to a few participants,” Domingo said. “We need participants who can commit to certain minimum volumes because we want scale. If there’s no scale in production, it will be expensive to produce cars here so they will not be competitive.”

The final details of the roadmap have yet to be released, leaving manufacturers unsure of what form the incentives will take or the exact requirements. However, with the ASEAN Economic Community due to come into force in 2015, opening up free trade and dropping remaining tariff barriers, manufacturers will be hoping the final details of the scheme will be in place so they can determine whether to step up their investments or focus on production in other member states of the bloc, meeting the Philippines’ rising demand for vehicles from abroad.

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