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The Philippines is a middle-income country, with per capita income
in purchasing power parity (PPP) terms of $5,137. PPP is what the
$5,137 can buy in local goods and services in the Philippines, not
the equivalent goods and services in the United States.
Of the 16 million households in the Philippines,
10 million can be considered middle income because of OFWs who
remitted $14 billion last year and probably will remit $16 billion
this year. Ten million OFWs and total remittances of $16 billion
translate into $1,600 remittance per worker per year. Since each
family has 5.5 members, $1,600 in turn translates into additional
per capita income of $291 for family members of 10 million of the
Philippines’ 16 million families.
In 2007, Filipinos had per capita income, in
nominal terms, of $1,665.46. Add the $291 additional per capital
income from OFW earnings, you have $1,956 per capita for the 5.5
members in two of every three households in the country. Stated
another way, two of every three households in the country have total
family income of $10,760 a year—a formidable purchasing power.
Multiply the $10,760 by three (because of purchasing power parity
multiplier) and you get $33,188 family income, in PPP terms, in two
of every three households in the archipelago. Thus, one can safely
conclude that the potential market for autos in the Philippines is
about ten million—the number of households or families with annual
family income of $33,188, in PPP terms. And how many units are sold
yearly today? Only 125,000—just 1.25 percent of the potential
market. A 10-million-unit market for local autos is not such an
outlandish idea. India’s auto giant Tata Motors has unveiled a
$2,500 mass-market Nano car. With cost increases, the Nano will
probably retail at $3,000—certainly within the purchasing power of
the $33,188 income per year of two of every three households in the
Philippines.
Normally, one allocates from 20 percent to 30
percent of a family’s income to make a car purchase or from $6,638
to $9,956 per year over a period of say, two years to five years.
The Nano’s $3,000 tag price comes within this budget range.
Obviously, the $3,000 Nano will not arrive in the Philippines
anytime soon. But the Nano’s production puts tremendous pressure
on Philippine auto assemblers to produce cheaper cars, at a price of
say, $10,000 per unit or P450,000. China’s Chery is such a car
today. Its presence shows to the industry that a cheap car can
be viable. China and India together have emerged as the mass market
for automobiles, now and in the future. China has emerged as the
next largest automobile market, after the US. China today has only
32 million vehicles or a vehicle ratio of 24 per 1,000. India’s
ratio is closer to 10 per 1,000.
China and India becoming huge markets for cars
opens opportunities for Philippine vehicle and components producers.
Free trade agreements are being forged by the Asean member states,
including the Philippines, with China initially and India later.
China or India can provide the market, Japan the
technology, design, and financing, and the Philippines and its Asean
neighbors the specialty production of specific auto parts and
components.
China has a population of 1.32 billion, India
1.13 billion, and the Asean 500 million—a total of about 3
billion, half of humanity. The doubling of the price of oil has
wiped out tariff gains from globalization in exporting to say,
Europe or America, and increased freight costs to a point where
regional globalization or shipping markets within the region,
becomes infinitely viable. It is now cheaper to ship a container
from Southeast Asia to China than it is to ship to the US, which
today remains the world’s largest consumer market.
Meanwhile, the need to sell vehicles to a
greater number of buyers has impelled the Department of Trade and
Industry (DTI) to take a second look at the local vehicle industry.
DTI Secretary Peter Favila notes that it takes P1 million to buy a
car these days. The amount is far above the disposable income of
most families. The high cost of locally assembled vehicles provides
impetus to a lucrative smuggling activity, especially in some of the
country’s free ports (except perhaps Subic). The Senate is
investigating possible smuggling of used secondhand vehicles at the
Port Irene free port in Cagayan, home province of Sen. Juan Ponce
Enrile, a powerful ally of President Arroyo.
Mrs. Arroyo’s Executive Order 156 and a
Supreme Court ruling made final last year banned the importation of
used vehicles into Subic. Senator Enrile doesn’t think the ruling
should apply to Port Irene. Besides, he says, the Supreme Court is
wrong in making the ruling.
The local auto industry could be at the threshold of major boom. But
challenges must be surmounted for it to enjoy the boom. One
challenge is put the issue of smuggling aside, once and for all.
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