THE VELOCITY Q&A
Felipe P. Estrella III Volkswagen Philippines President
FEW BRANDS boast a history as rich as Volkswagen’ s, and the Wolfs burg headquartered automaker founded by a labor party in 1937 has indeed had its share of memorable global models over the decades. Chief among them is the nameplate that put the brand on the map: the Beetle.
Before its production ended in 2019, the Beetle, along with the Kombi and other models, made a deep imprint in the Filipino psyche as well. The marque had its storied run in our streets beginning in the late ‘50s, and says Volkswagen Philippines, “peaked in popularity in 1970 when… a total of 6,100 Volkswagens were sold in that year alone, hoisting the German marque up to become the number-one seller in the Philippine automobile market.”
But from the 1980s to the early 2010s, the brand had been “pretty much absent from the country,” shares Felipe P. Estrella III. This was rectified in 2013 when the Ayala Group of Companies, through Automobile Central Enterprise, Inc. (ACEI) was appointed the sole VW importer for the Philippines. Mr. Estrella now heads Volkswagen Philippines as its president.
Responsible for the overall strategy and operation of VW Philippines for the distribution, sales, and service of VW vehicles to all VW customers in the Philippine market, Mr. Estrella also serves as an executive director of Ayala Corp., and concurrently serves as the Chief Finance Officer of AC Industrial Technology Holdings, Inc. (or AC Industrials) the parent company of ACEI and wholly owned subsidiary of Ayala Corp.
Here are excerpts from our interview.
VELOCITY: How do you see the industry, and how is it shaping up this year? CAMPI (The Chamber of Automotive Manufacturers of the Philippines, Inc.) and AVID (Association of Vehicle Importers and Distributors) expressed hope that this will be a recovery year. How are you seeing it from your end? FELIPE ESTRELLA III:
It continues to be a challenging environment for our country and for the world, not just from a business perspective but from a personal one. The domestic automotive industry is one of the more exposed industries to the current environment. At the beginning of the year, there was the added element of the safeguard measure being introduced, and there of course, there had to be a process that the government had to undertake to properly vet and study the issue presented.
Of course, we’re happy to note the decision of the government not to continue with the safeguard duties. It will certainly be a positive, primarily I think for the consumers. Secondly, we as an industry will benefit from that, because it reduces the cost to own and that should help. Overall, compared to last year, we are seeing a bit of a recovery in terms of sales volume in general.
Last year, being the first year of the pandemic and (with) so much unknown at the time, was really a difficult year for many industries. I think, having a year of experience under our belt, we’ll be able to adjust. I guess it’s partly a recognition that we have to find a way to cope to with the current realities, and I think the industry has shown that it has adopted. We’re seeing improvement compared to last year. Having said that, we have had two ECQs happening this year because of the (infection) spikes. Whenever this happens, our dealers of course are not able to operate. That obviously also has a material impact on customers’ abilities to transact with us during that particular point in time.
So, we adjust, we adopt, and fortunately the measures that we’ve taken the past 18 months or so seem to be helping cushion the effects, and have set us up for some recovery.
How is Volkswagen Philippines doing overall in terms of sales? What’s your projection for the year, and are you on course?
Last year was definitely a low point, but we are seeing an improvement this year. I think we’re close to already approaching our full-year number of last year. We anticipate that we will overtake that number before the end of the year. That means we will be able to show a growth over last year as a brand.
A lot of our optimism for the second half of this year is because we are rolling into it with the recently launched T-Cross, and then a few months later we launched the Multivan Kombi. Now that we’re in MECQ, people will have more ability to move around and, on the assumption that the balance of the year will be year around that set of parameters or constraints, then we think the second half will help us get to our goal of doing much better than last year. The trend seems to be pointing in that direction also. We’re encouraged and we’re trying to move and capitalize on this momentum.
Speaking of momentum, a lot of attention is focused on VW because of the significant releases that you’ve had for the year — namely the aforementioned T-Cross and the Multivan Kombi. How has the reception been?
Very positive. The two products are in very different segments with very different sizes as well. Before the ECQ, certainly there were a lot of people coming into the showroom, checking out the cars, making reservations, and preparing to take delivery of their vehicles. We anticipate that once we’re able to get back to some level of activity on the sales side in our dealerships, that momentum will come back.
The T-Cross has been very well received by customers who’ve managed to take delivery of the vehicle. It’s a product that’s in a very fast-growing segment, and it looks like the customers who are shopping in that segment and in that price point (see) that this product ticks a lot of boxes for them — so, it’s in their consideration basket, and we’re very happy about that. I think we put forward a pretty decent and good value proposition for the T-Cross. Hopefully, it makes their buying decision a little harder, because it adds another choice.
The Multivan Kombi is in a much smaller segment — the premium executive and family van segment. But nonetheless, I think we’ve been able to identify this particular product that will have a distinct appeal to customers shopping there.
There were some questions regarding the fact the company brought in the most expensive version of the Multivan Kombi.
You’re right; there are other variants of the Kombi available. There’s the Transporter that’s a utility van for the most part, the California which is a specificuse type of van with camping features and all that, and there’s of course the Caravelle which is more of a people mover. We think the Multivan Kombi is one of those products that has the right set of features, characteristics, and qualities — plus it has a diesel engine which is very popular in the Philippines — for this identified segment. I think bringing in the other variants of the Kombi is certainly part of the assessment we’re making, and if we think that these will have a place in our local market, then we will consider bringing them in. But if you take the Transporter, for example, as a utility
‘The brick-and-mortar dealerships will still be there, but they need to evolve. My sense is that, especially with how populations and urban centers are evolving, dealerships need to evolve accordingly, maybe into smaller spaces that will have a lot of digital elements to them so that information — obviously increasingly important in the modern day — is more readily available.’
van you know there are a lot of utility vans out there that would compete very aggressively with it because of a variety of things, including the accompanying friction costs that would inherently be part of the equation. If in our assessment a particular product would not be able to afford our customers something attractive and compelling, we tend to shy away from bringing those products in because it’s a tougher sell, and we understand that our customers are knowledgeable and are of course looking for something where they get their money’s worth. It’s all these things that play into that sort of a decision.
As you mentioned, a lot of industry performance this year will hinge on the quarantine restrictions that we have. Many companies not just in automotive have pivoted to digital not just to get ahead of the virus but because it’s something that is seen to be inevitable. What has VW Philippines done in this regard?
You’re absolutely correct. I’ll use the word “adapt.” Around the world, things were already changing even before the pandemic hit: Megatrends that people had been talking about in the mobility space in terms of alternative drivetrains and connectivity, for example. The pandemic obviously affected those megatrends and will somehow cause those megatrends to also adjust. But I think the world has already been evolving, and the pandemic just adds another piece to the equation to evolve around. In our case as Volkswagen Philippines, we’ve actually embraced the resultant constraints that emerged over the past 18 months, and part of this, as you correctly mentioned, is more focused on developing the digital aspect of our business.
We’ve worked very hard on developing our digital presence in order to be able to reach out and communicate with our customers the different things we’re doing and different products that we have. In partnership with our dealers, because they’re the primary touchpoints with our customers, we’ve also tried to establish more digital channels where customers can interact with our dealers through websites, traditional voice. And our dealers have adapted.
This is all part of the broadening of the engagement of customers moving forward. Even in terms of purchases, in the olden days, you would go to the dealership to pick up your brand-new car. Now, because more and more people are concerned about safety and moving around, they request us to make deliveries of their new vehicles. Our dealers do that.
Even in the service side, we continue to study ways to make service more accessible to our customers, including on-site service in the customer’s office or home. We’re already doing it to some degree, but we’d like to do more of it and establish the concept of mobile service as well.
You have eight dealerships. What has the pandemic done in terms of how the company views dealerships? Traditionally, it’s always been more dealerships mean more business. In view of the transition to digital in more ways, does this new normal still have room for brick-and-mortar facilities?
While Zoom and e-communication are great, there is this element of interaction that is necessary and healthy and is part of our being human. The brick-and-mortar dealerships will still be there, but they need to evolve. My sense is that, especially with how populations and urban centers are evolving, dealerships need to evolve accordingly, maybe into smaller spaces that will have a lot of digital elements to them so that information — obviously increasingly important in the modern day — is more readily available. The migration into this model will also help on the business side. Obviously, the more efficient use of capital is also a more productive use of capital. If we’re able to achieve productivity, this will fuel growth and development. Even as the physical space might evolve and change into smaller but more efficient types and uses, we will (meet) within these spaces the need for information.
Will traditional dealerships become irrelevant?
They will continue to be relevant, but they will adapt, and they will change. Even for us at Volkswagen, we’re not going to stop at eight dealerships. We will try to have some presence and representation in certain key geographical areas. It’s just a little more difficult to do that with the pandemic as a backdrop. We’re being more thoughtful about that, and we’re working with our dealer partners as well. But we haven’t stopped in terms of planning and strategizing for the future and identifying the certain geographical areas that we think we need to eventually be in in order to bring our products closer to our customers. But when we do enter those markets, we will probably show up with a different look and a slightly different format than what’s been typically seen in the past.
One of the significant things about your new releases this year is that these are both global models. How are you evolving the portfolio here? While you are welcoming new models, we are not seeing some of the other nameplates. How are you approaching this evolution of the lineup?
The first and foremost consideration for us is the customer. What is the customer looking for? What does the customer want or need? How much is the customer willing to invest to meet what he or she is looking for? In the specific example of the T-Cross, we saw a segment of the automotive market that is developing. At a certain price, customers are opting to transition from perhaps the traditional sedan format or even the large SUV format and move toward a more compact/ subcompact SUV format.
A lot of the pre-pandemic talk was about shared mobility — taking advantage of one asset to serve multiple users. Obviously, the pandemic produced a consideration about safety, and related to that are things like contact tracing. So, people are opting to forego the shared mobility concept and instead make an investment on a car. Obviously, if they’re going to make that investment, it’s for a need, and therefore they have very practical considerations. They’re shopping at price points which as we noted are slightly above one million or sub-one million range. There’s a lot of growth in those segments. We were able to identify that the T-Cross in particular would be an ideal product to offer to customers.
We’ve also recognized and noted that there are nameplates that are more known among customers. Obviously, a known nameplate is easier to identify with than something that’s unknown because then you’ll have to make the effort to introduce the latter. This year, we’ve chosen to introduce more known nameplates as you mentioned, and we think this will also help. I think this is from a marketing and awareness standpoint, because from a product standpoint, Volkswagen being the global company that it is, there’s no material difference (regardless where it’s made). From a logistical standpoint, it does make sense to produce closer to your customers. Therefore, we have manufacturing plants all over the place.
In our case, there are benefits to sourcing depending on their availability because not every product is built in every plant. We source products from plants that make sense from a distance standpoint, international trade standpoint if there are certain benefits in that regard. If I source from South America, it’s going to take a long time before that car gets here.
All of these things come together in terms of the specific products that we bring into our market. In the case of the T-Cross, we have a supply point that’s nearby and allows us to bring the vehicle to our customers at very attractive prices.
In the case of the Kombi, it’s not as widely produced in multiple sites, and therefore we necessarily have to take it from manufacturing plants in Europe, and obviously there are implications associated with that. The good thing is that the type of product it is and the characteristics that it offers at the price that it will land here it have a certain appeal to the segment we’re trying to reach. The Kombi, if you compare it with peer-group premium vans, is actually very, very competitively priced, so you get a lot of these premium features. When you take a look at the SRP, I dare say that its SRP is lower than most of the options available in that segment.
You’ve said that Volkswagen Philippines will take a look at what its customers want. While you certainly have newer fans perhaps without
awareness of the older nameplates, you do have more seasoned fans who remember the brand and its heritage. They remember the Jetta, Polo, and Golf.
You’re absolutely right. Volkswagen is one of those unique, longstanding brands that really have a very interesting following among Filipino auto enthusiasts in particular. Between the 1980s to 2010s our brand had been pretty much absent from the country. Yes, people remember Volkswagen, which I think is a testament to the brand itself. I love that we have such passionate fans and owners — current and past owners. The process, I guess, of determining what products make it to our shores is a product of a lot of collaboration. It’s not something that we as Volkswagen Philippines can unilaterally decide on.
We have to work very closely with Volkswagen Global and any other groups that may be involved in the whole process of bringing a product into the market. I can say that even globally, Volkswagen itself is evolving, and it has had a set of success, challenges, and strategy shifts, and I think we’ve already mentioned to expect Volkswagen globally to evolve even more moving forward.
What does this mean? We do recognize that a lot of customers do mention that they want to see some of the other nameplates come back into the market. Obviously, on a practical basis, we would welcome customers reaching out to us and letting us know because with that information we could go back to our partners and say, hey, look we have customers here looking for this particular type of vehicle. Can we bring it in? If our partner says yes, then by all means we would certainly like to make those customers happy.
In terms of other products that may come into the market, that’s a continuing discussion that we have with our partners. While I cannot make any disclosures at this point in time, certainly, we will continue to look at specific nameplates we can bring in moving forward — whether they are newer nameplates or they are the old familiar nameplates.
As a last food for thought, especially for our fans out there, as I said, Volkswagen is evolving and you’re already seeing it. If you think Volkswagen, the Beetle is one of those names that immediately pops up. Yes, globally, Volkswagen has decided to sunset the Beetle. They have their reasons for it. I’m sure in the years to come it will become clearer as to why that decision was made. I think that’s part of the development journey of Volkswagen that we here in the Philippines should not be surprised when it happens and when certain products stop or are not available to our market.
That also signals a certain type of future ahead. The Beetle not being available is not the end of it, because it opens the door for a range of electric vehicles to find their way here in the Philippines. We know that this is a trend that’s going to happen in the future. It’s an exciting portfolio of electric vehicles that Volkswagen is developing, and we can expect that at some point in the future we will make that transition.
While we may not be thrilled about the Beetle not being there, we can also look forward to the ID.3 or ID.4 or ID.Buzz eventually making it here in the Philippines.
Is there something we can disclose? What’s next for the year? Are you done for the year?
We were looking to potentially launch one more product this year. But there are externalities that we are unfortunately dealing with — in particular, Volkswagen Global is dealing with. There’s the pandemic of course, but there’s the chip shortage that’s going on globally that’s not only affecting cars but all sorts of electronic devices, and this has had an impact on production and delivery lead times.
I can say that we’re still working on that plan. The timelines are not yet firm at this point. I’m hopeful that in a best-case scenario we may be able to bring in another model into the market by the end of the year. If that doesn’t happen then we’re looking at something next year.