Automotive sales are on the rise

Published January 17, 2022, 5:52 AM

by Vince Socco

The automotive market in the Philippines made a decent comeback in 2021. Total sales of around 280,000 vehicles translates to a 16 percent growth over 2020. This is a very welcome and encouraging development for the industry.

Of course, it can be argued that the growth is on the back of a low base in 2020. I would readily reply, though, that any growth is better than none or, worse, a further slide. In fact, auto sales last year reached almost 70 percent of pre-COVID levels in 2019, up 10 points from the year before. Is it enough? Surely not. However, automakers know that recovery for the sector is going to be a journey and not a quick bounce back.

What drove growth? Primarily, it was the return of consumption in line with the reopening of the economy. Actually, in 2021, we were effectively under strict lockdown for almost four months, in March and April then August and September. Despite this, the government persisted in its efforts to jumpstart economic activity.

The difference between government’s initiatives in 2020 and 2021 was that the Inter-Agency Task Force (IATF) for the Management of Emerging Infectious Diseases restored a greater degree of mobility to the system. Public transportation capacity was increased and people were given a wider berth in their movements – even during raised quarantine levels. This was an essential complement to reopening the doors of businesses and commercial establishments. As well, manufacturing was allowed to continue, basically unimpeded. And, even construction was allowed to carry on. These moves rebooted the economic engines more significantly than before.

The other critical difference between last year and the year before was the vaccination roll-out. Up to the first 10 days of 2022, the Philippines has reported around 49 percent of its population as fully vaccinated. This is in line with the worldwide average of 50 percent and is slightly ahead of India and Indonesia. In ASEAN, Singapore, Malaysia, Vietnam and Thailand – among the major economies – have achieved higher vaccination rates. Indeed, vaccination provided the government more confidence in their revitalization efforts and in allowing a greater measure of mobility.

As economic activity started to increase, the other positive development for the industry was the gradual return of banks to consumer durable loans. It was not a spike but there was a noticeable rise. Mainly, banks catered to their respective depositors which is understandable since these loans would be relatively secured by their own deposits. With the drop in business loans and many companies paying down their borrowings, banks were flush with cash. The policy of the Bangko Sentral was also to keep liquidity high. Therefore, banks were taking a guarded approach to making their cash work for them. Even back in 2020, it was the consensus that there could be no recovery of auto sales without a bounce in consumer lending by the banks. 2021 was a clear step in that direction.

Finally, one other factor that resulted in the rise in vehicle sales were the efforts of automakers themselves. New models were launched that stimulated consumer interest in autos. Each brand also offered attractive promotions meant to influence buyers to buy now than put their decision off for later. In 2021, the focus was on increasing volume while preserving margins. Accordingly, most of the promos focused on value enhancement than price. On the contrary, the priority in 2020 was in paring down high inventories and generating cash to pay-off operating costs. 

The most significant downsides to 2021, though, were the lockdowns, for one. The other was the supply chain disruption brought about by the closure or reduction in production of component parts. Most significant, though, was the shortage in the supply of microchips that affected all carmakers across the globe. As such, supply of vehicles was reduced and local auto companies could not fully meet the rise in vehicle demand. It might even be argued that sales could have been higher had there been no problems with supply.

So what lies ahead for 2022? It seems the industry is banking on a further increase in economic activity to spur vehicle sales. Remittances from Overseas Filipino Workers (OFW) remain resilient and is expected to further grow as the global economy starts to revive itself. Election spending – according to some economists – will tack on 1 percent to GDP. Infrastructure spending by government is seen to be sustained while capital expenditures by the business sector is also projected to expand to meet the rise in demand.

The new year is off to a rough start but there are high hopes that the surge in COVID cases due to Omicron will subside within January and return to stable low levels by February. If so, the pluses would far outweigh the minuses for the auto market. I am convinced that it will be a better year.

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