Mixed feelings on auto sector’s prospects

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Ben D. Kritz

LAST week, I spent the better part of two entire days at the 2017 Manila International Auto Show, both in my capacity as Motoring Editor here at The Manila Times, and as a carrier of the Y chromosome. Apart from the eye candy, the most remarkable thing about this year’s MIAS was the atmosphere: The enthusiasm of the industry for its prospects for this year is palpable, but so is the apprehension.

Without exception, every manufacturer and distributor of cars, trucks, motorcycles, every imaginable part and accessory for vehicles, and those who provide related services such as auto loans and insurance, expect their 2017 sales to significantly exceed last year’s, and almost all of them plan to expand their operations.

The hyperactive market in the Philippines has attracted a number of new entrants this year as well. Indian giants Tata and Mahindra, who have been here for a few years in the truck market, are introducing models from their passenger vehicle lines. China’s Great Wall Motors is doing likewise, introducing the Haval brand of sport utility vehicles. In addition to the new players, most of the existing ones rolled out more new models this year than they typically do; there is a sense that this year (the automotive calendar runs a few months behind the actual calendar) is a moment to be seized, and everyone is making the most of it.

One of the biggest bettors on the local market is Hyundai, whose massive display—two, actually, one for cars and one outside for the company’s extensive commercial truck line—dominated the show. Although not yet as dominant here as Japanese stalwarts Toyota and Mitsubishi, the Korean company is quickly catching up. In addition to launching two brand-new models—the Creta crossover (which in car-people talk means “cross between a car and an SUV”) and the up-market Genesis G90 sedan—Hyundai also officially launched its local assembly center, rolling out the first Philippine-assembled examples of the Eon compact and H350 passenger van.


That apparently is a prelude to Hyundai’s jumping in as the heretofore elusive third participant in the government’s P27-billion Comprehensive Automotive Resurgence Strategy (CARS), joining Toyota and Mitsubishi, which are building the economical Vios and Mirage G4 models, respectively, under the program; Hyundai would presumably be building its entry-level Eon model.

That big vote of confidence stands in stark contrast to the trepidation expressed—mostly off-the-record, naturally—by most stakeholders about the expected negative impact of the government’s proposed sharp increase in the vehicle excise tax. Most are careful to say that they support the government’s aim to raise more revenues, at least in a broad sense—after all, some of that windfall will be devoted to developing infrastructure like roads—but that the structure proposed is top-heavy, unfairly targeting more expensive vehicles.

The manufacturers of lower-end vehicles realize this, too, which is why relatively inexpensive models from the likes of Tata and Mahindra are appearing in the country now. A big part of the consumer market is going to be taxed out of mid-range and higher-end vehicles but still feel they want or need a car, and settle for the more inexpensive models. The tax on those is going to increase as well, but will not raise the overall prices of the vehicles by nearly as big a percentage as the progressive tax will on the more expensive ones.

Followed to its logical conclusion, the tax increase is going to have three perhaps unintended consequences. First, it is going to flood Philippine roads with (relatively) low-cost cars, completely defeating one of the stated purposes of the increased excise tax, which is to reduce vehicle volume and traffic congestion. Second, it is going to drive some major brands out of the market entirely, and cause some others who are uncomfortably in the middle of the low and high ends of the market—examples may be manufacturers like Nissan, Honda and Mazda from Asia, Ford and Chrysler from America, and Peugeot from Europe—to pare down the number of models they offer here. Third, it is going to create a wonderful opportunity for the gray and black markets; the latter consisting of vehicles smuggled outright, the former being vehicles that are brought into the country through various loopholes.

If the government wishes to avoid those problems—and it ought to, unless it actually does intend to kick one of the economy’s gift horses in the mouth—it should revise its excise tax proposal to a flat tax. The revenue might not be as great, but it will be easier to collect, and be more likely to grow as the industry does.

ben.kritz@manilatimes.net

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