Philippines auto sales show steady growth

The automobile industry notched up a robust performance in the Philippines last year, with record sales continuing in early 2015, largely due to economic expansion and the growth of the middle class.

Despite the fact that production remains low compared to other Asian manufacturing centres, the sector is poised to boom over the next several years. New investments in manufacturing facilities by automakers and the government’s soon-to-be-implemented incentive programme for investors in large-scale vehicle production − which could offer tax holidays and credits − will underpin further growth in the industry.

Strong start to 2015

According to the Chamber of Automotive Manufacturers of the Philippines (CAMPI), the industry started 2015 on a strong note, with January sales up by 19.3% year-on-year (y-o-y), the highest sales levels ever recorded in the month.

CAMPI, in partnership with the Truck Manufacturers Association, reported that a total of 18,662 units were sold in January, compared to 15,647 in the first month of 2014. This was led by the passenger car segment, which recorded 35.8% y-o-y growth to reach 7200 units, while commercial vehicle sales rose by 10.8% to 11,462. Although light trucks reported a 4.8% decline, the utility vehicle segment increased by 5.6% to reach 3543 units, while light commercial vehicle sales were up 14.1% to 7483 units. Heavy-duty trucks and buses also increased 14.2% to 161 units.

January is traditionally a slow month following the busy end-of-year sales season, but rising monthly sales highlight the industry’s strong growth prospects. Indeed, CAMPI reported that total new vehicle sales grew 29.5% in 2014 to reach 234,747 units, compared to 181,283 in 2013. The data, which covers 19 brands, showed that passenger vehicle sales surged by 47.8% in 2014 to reach 90,287 units, while commercial vehicle sales rose 20.2% to reach 144,460 units.

CAMPI’s president, Rommel Gutierrez, said the industry was expected to grow 15% in 2015. Results from the first two months of the year suggest the target may well be achievable, with sales increasing by a further 11% month-on-month in February to a record 20,633 units, a rise of almost 23% y-o-y.

Year-to-date figures for 2015 are up 21% from 32,506 units in the first two months of 2014 to 39,325 units in the first two months of this year. “If this trend continues, industry may again exceed its target for the year,” Gutierrez said.

Foreign automakers move in

A strong macroeconomic performance in the Philippines will support increased manufacturing activities. GDP growth stood at 6.1% in 2014 – albeit short of the government’s target – and is expected to reach 6-7% in 2015.  Foreign direct investment (FDI) increased by 61.6% to hit $5.7bn during the first 11 months of 2014.

With consumer purchasing power expanding as a result of strong economic growth, the Philippines has become increasingly attractive to international automakers. Following a move by China’s Foton Motor to establish a new $20m manufacturing facility in 2014, Volkswagen became the latest player to shift its attention to the Philippines in April, when it announced plans to invest as much as $200m to build a new assembly plant and, eventually, a regional production hub capable of producing up to 100,000 units annually.

According to a recent report in the Bangkok Post, the German manufacturer plans to establish a “completely knocked-down” (CKD) facility which uses kits manufactured outside the country and imported for assembly, prior to commencing domestic manufacturing. Volkswagen Philippines’ president and CEO, John Philip Orbeta, told local media that the first phase of the project entails investing $40m-50m in a CKD facility, followed by an additional $150m investment in manufacturing.

At present, the market is dominated by Japanese automakers, with CAMPI reporting that Toyota Motor Philippines held a 46.7% market share in the first quarter of 2015, followed by Mitsubishi, at 17.4%. However, American and European manufacturers are making inroads, and Ford Motors held an 8.8% market share in the same period, the third largest. Volkswagen’s market presence remains limited so far, with Orbeta reporting that the company sold 600 vehicles in the country last year, leaving room for expansion of both sales and manufacturing activities.

Investor incentives

Despite the nation’s increasing attractiveness as an auto-manufacturing centre, infrastructure and utilities constraints continue to pose challenges to the industry. The ASEAN Automotive Federation reports that the Philippines lags behind its ASEAN peers in vehicle production, which stood at 88,845 motor vehicles in 2014, compared to 1.88m in Thailand, 1.3m in Indonesia and 596,418 in Malaysia. However, the Philippines recorded the region’s second-highest production growth rate in 2014 at 12%, while Malaysia contracted and Thailand was flat.

The Department of Trade and Industry’s upcoming Comprehensive Automotive Resurgence Strategy (CARS) programme, which is still awaiting executive approval, will offer considerable incentives to automotive manufacturers, and could see the country become a major regional competitor in the medium term.

Under the CARS programme, manufacturers will be offered incentives that are expected to include a combination of tax holidays and tax credits. Manufacturers must meet minimum production levels of 40,000 units a year to qualify, although some confusion remains as to whether companies like Volkswagen will be permitted to benefit from CARS incentives, as certain processes required to take place in the Philippines in order to be eligible for the benefits are already automated in Germany.

Clarifying the provisions of the CARS programme will be a critical next step for the automotive manufacturing segment.