The mobility industry is one of the pillars of the Philippine economy. It supports the livelihood of hundreds of thousands of Filipinos up and down its entire supply chain – from auto manufacturers, component part makers, importers, logistics providers, dealers, service shops, financing and insurance partners, petrol companies, transport vehicle transport service (TNVS) providers and many more. The sector not only provides jobs, generates revenues for government and enhances technology transfers; it also moves people, goods and lives. Arguably, it is an essential segment of the economy.
When the Covid pandemic – and ensuing quarantine periods – hit, the automotive industry suffered devastating reversals. In the past 13 months, the industry has been quietly working on its own to get back on its feet. Like other industry segments, auto companies were roiling from severe body blows inflicted on their business. A much needed lifeline would have been welcome but, given the extreme health, social and economic demands faced by government, the auto industry decided to do what it could to get its ship back in shape using its own resources.
In April last year the economy was shuttered and auto vehicle sales dropped to nil, a historical low for the industry. In May, with partial business activity allowed in areas outside the National Capital Region (NCR) sales of new vehicles resumed but was still only at 15 percent of the same month in the previous year. Eventually, as the economy reopened, demand for autos started to return although at lethargic levels of around 60-65 percent of year-ago levels.
By the third quarter of 2020, signs of a recovery became more apparent with sales rising to 70 percent of prior year levels until, in December it came to within 80 percent. It was a steady trajectory that raised hopes that the auto industry would achieve a much needed boost in sales in 2021.
At the height of quarantine restrictions and the steep slide in consumer confidence, auto dealers were faced with the pressing problem of inventories that were imported to support a vibrant market. As the brakes were applied on demand, dealers were burdened with overly high levels of vehicle stocks. Given the high value of autos, this resulted in very severe cash flow positions.
As a result, auto companies started offering sales promotions that would allow them to convert inventories into much needed cash to pay for administrative and other fixed expenses. Banks, after all, had turned the taps off on credit. If available, interest rates were at 6 percent or higher per annum.
Among the more memorable sales promotions were the buy-one-take-one offers by some dealers. According to the proponents, these were very effective in moving inventories out of showrooms. Margins and profits took second priority to liquidity.
Another critical challenge that the industry had to face was the dearth of consumer financing. In this field, Toyota was able to avoid a catastrophic collapse in sales. Toyota in the Philippines has a dedicated financing arm, Toyota Financial Services Philippines (TFSPH). At a time when banks were sheltering against potential loan defaults, TFSPH was continuing to underwrite auto financial leases. Other banks, while cautious, stayed in the market to finance only their own depositors.
Financing was a critical factor because the nature of auto purchases shifted to essential than luxury models. For small and entry level market segments, affordability and, therefore, financing is critical. With the lack of consumer financing, other brands resorted to huge price discounts to feed cash purchases.
Yet another hurdle that presented itself to the auto industry was the physical limits on mobility and hesitancy of motorists to leave home. In times of adverse auto sales, dealers would normally rely on their after-sales business to help them weather the market slowdown. This time, however, customer traffic to service shops was disrupted. Car owners were not comfortable taking their vehicles in for servicing, not to mention that lockdowns and work-from-home arrangements meant lower mileage on their vehicles.
In order to encourage car owners to visit service workshops, auto makers and dealers pushed out mobile applications that allowed customers to make appointments and, accordingly, reduce the time they spend waiting in the dealers. Special promotions were also launched, focusing on car disinfection and cleaning. Contactless customer experiences were also put in place to provide customers with peace of mind.
The ability of the frontliners – the dealers – to navigate the uncertainties wrought by the pandemic meant that upstream players – the manufacturers, importers and parts makers – were better placed to keep the supply chain moving. Of course, auto distributors had to lend their full support to the dealers but that was necessary to help keep the industry afloat.
The auto industry is a long way from recovery. But it continues to fend for itself and, in the process, saves lives and livelihood.