PHL auto output growth seen leading ASEAN

THE PHILIPPINES is expected to be the region’s fastest-growing car production hub in the next five years, BMI Research said, driven by robust consumer demand and the government’s support through policies aimed to grow the domestic automotive industry.

“We forecast car production in the Philippines to grow at an average annual rate of 33.3% over the next five years, making the country the fastest-growing car production hub in the Association of Southeast Asian Nations (ASEAN) region,” the Fitch unit said in a June 26 report.

It noted that Vietnam ranks second in its outlook, where it forecast car production to grow at an average annual rate of 13.3% over 2017- 2021, following announcements of new joint partnerships by foreign automakers in Vietnam.

“In the Philippines, we believe that the approval of Mitsubishi and Toyota as participating car makers in the government’s Comprehensive Automotive Resurgence Strategy (CARS) program will help boost domestic passenger car production,” BMI said.

The so-called CARS program, established by Executive Order 182 that was signed by former President Benigno S. C. Aquino III on May 29, 2015, provides incentives to three car makers to locally produce three car models with a production volume of at least 200,000 units for up to six years, or an average of 33,333 vehicles per year.

The growth in car manufacturing will “help attract investment into the domestic automotive supply chain by creating opportunities for component suppliers,” it added.

The auto industry reported 359,572 units were sold in 2016, up from the target of 329,300 cars according to the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA). The other domestic auto industry group, the Association of Vehicle Importers and Distributors (AVID), reports its member companies’ sales separately. Last year, the combined target of CAMPI, TMA and AVID was 370,000 units.

This year, CAMPI President and first Vice-President at Toyota Motor Philippines Rommel R. Gutierrez said that auto industry sales are expected “to hit 440,000 — 450,000 in 2017.”

“Government policy aimed at growing the local automotive industry in the Philippines and announcements of new joint partnerships by foreign automakers in Vietnam will be the primary factors driving our positive outlook for both countries over the next five years,” BMI Research said in its report.

Robust car demand in both the Philippines and Vietnam will also help create a supportive market for rising car production in both countries.

BMI Research said in the Philippines, it expects “strong remittance inflows, an improving labor market and favorable outlook for the economy to support average annual growth of 14.5% in new-car purchases over the next five years.”

“Therefore, we expect this growing consumer demand for cars to support rising car production over the next five years,” it said.

A downside risk to its positive outlook for car production in the Philippines however, will be auto tax reforms proposed by the Duterte administration which it said “will raise retail prices of vehicles and thus hurt local demand.”

“This will weigh on growth in car output as local producers scale down production due to weaker car demand. At the moment we are maintaining our bullish outlook for car production until the government’s tax proposal is finalized,” the Fitch group company added.

According to the House of Representatives-approved version of the tax reform bill, during the first year of implementation, if the net manufacturer’s price/importer’s selling price is up to P600,000, the effective excise tax is 3% from 2% currently. If the price is P600,000 to P1.1 million, the tax will be P18,000 plus 30% of the value in excess of P600,000, while if the price is over P1.1 million to P2.1 million, the tax will be P168,000 plus 50% of the value in excess of P1.1 million.

If the price is P2.1 million to P3.1 million, the tax rate will be P668,000 plus 80% of value in excess of P2.1 million, and if the price is P3.1 million, the tax will be P1.468 million plus 90% of the value in excess of P3.1 million.

For the second year of implementation, the excise tax for automobiles will be raised to 4% if the net manufacturer’s price/importer’s selling price is up to P600,000. If the price is P600,000 to P1.1 million, the tax will be P24,000 plus 40% of the value in excess of P600,000.

If the price is over P1.1 million to P2.1 million, the tax rate will be P224,000 plus 60% of the value in excess of P1.1 million; if the price is P2.1 million to P3.1 million, the tax will be P824,000 plus 100% of value in excess of P2.1 million and if the car cost is over P3.1 million, the tax will be P1.824 million plus 120% of the value in excess of P3.1 million.

The government on several occasions allayed fears about the adverse effects of the tax reform package on the auto industry, saying adjustments to the automobile tax are not likely to dent the currently strong growth of the auto industry and cited the positive overall impact on the economy.

Latest industry association data show that sales of vehicles in May rose 17% to 35,469 units, and pushed five-month sales to 158,533 units this year, an increase of 17.9% year on year.