Hikosaburo Shibata, President and CEO, Mitsubishi Motors Philippines: Interview

Interview: Hikosaburo Shibata

The Philippines is among the fastest growing car markets in Asia. What is driving this growth, and what characterises the domestic market?

HIKOSABURO SHIBATA: Sustained economic growth and subsequent higher disposable income for Filipino households has generated significant growth momentum and opportunities for expansion in car sales. In 2014 the January to October period saw total demand for car sales grow by 28%, outpacing the performance of similarly sized markets elsewhere. After Thailand, Malaysia and Indonesia, the Philippines is the next country in the region undergoing motorisation, incentivising manufacturers and car dealers to pursue expansion. Historically, countries have undergone rapid motorisation when GDP per capita reaches $3000; in 2014 the figure for the Philippines was estimated at $2913, according to the IMF. While Manila and Luzon account for the majority of new car sales, expansion into provincial and rural markets offer significant growth potential.

Whereas the large families and strong ties that typically characterise Filipino households have led to the popularity of seven- and eight-seater SUVs, demand for A and B segment cars is also rapidly increasing as higher disposable income translates into demand for smaller and more fuel-efficient cars.

Environmental friendliness is another major global trend for the car industry. However, the Philippines still needs significant support, both legislative and infrastructural, to encourage the large-scale adoption of environmentally friendly models. From the government standpoint, there has been an environmental law drafted in Congress, that could boost developments in environmental sustainability and increase awareness of pollution reduction.

In what ways do unauthorised imports and the formation of grey markets affect the automobile market in the Philippines?

SHIBATA: Currently, the majority of used car imports are luxury models, particular coming to the northern part of Luzon, in Cagayan. In the past, there was a higher incidence of second-hand SUVs being imported from Japan: however, Executive Order 156 and its ban on the importation of used vehicles was able to curb this. Nonetheless, around 40,000 to 50,000 second-hand cars are imported from around the world. Given the fact that new car sales are expected to reach roughly 260,000 by the end of 2015, the used car market would still represent around 17% of the market. Unlike in Indonesia, Malaysia or Thailand, where local car manufacturing is protected from the used car markets, there is still room for further strengthening the implementation of the ban in the Philippines.

In addition, the Philippine second-hand car market is not mature. Whereas dealers in neighbouring countries generally offer used cars and the option for consumers to trade in their used vehicles, in the Philippines used car transactions still tend to occur outside of the dealership businesses.

To what extent can the development of a roadmap for the auto industry incentivise automotive companies to invest in manufacturing facilities?

SHIBATA: We have the longest history as an original equipment manufacturer operating in the Philippines. The acquisition of the former Ford plant is a strategic decision to invest and increase our current production capacity to up to 100,000 units. However, this will not materialise in the absence of a roadmap for the automotive industry. Although the country is recognised as an important market, the Philippines currently produces roughly 80,000 units compared to the production of 2m units in Thailand.

Furthermore, manufacturing activities are important because they create jobs: not only tier 1, 2 and 3, but a wide range of employment opportunities from logistics providers to the chemical industry. The Philippines exhibits a real opportunity to capitalise on manufacturing, provided the right framework is put in place to give support to the growth of the industry.