Has Peak Auto Sales Arrived?

Campi: Vehicle sales in H1 up by 17% - Business Mirror, July 13, 2017

June auto sales up by 14% amid ‘dealer push’ – Manila Times, July 14, 2017

Auto sales jump 17% in 1st half, ahead of impending tax – Manila Bulletin, July 13, 2017

Looking at the headlines one would have the impression that the auto market continues to grow at a very brisk pace.

Today’s HISTORIC LOW nominal interest rates, which are equivalent to negative real rates, have functioned assubsidies to debtors. Under such free money environment, one should expect little wrinkles in the sales of leverage industries, such as auto vehicles.

 

The recent spike in the volatility in growth rates had partly had been blamed on holidays.

So I waited for the June data in the hope for a smoothing out of the industry’s growth trend.

Gross unit sales climbed to a new record. However, seen from the growth rate, rose colored glasses would have to face a harsh reality.

If my suspicions are right, auto sales have hit its peak in July 2016. From then, diminishing returns will most likely prevail.

Growth rates of auto sales have tumbled since. The BSP’s data on banking system’s auto loans seems to have reinforced such cascading trend of auto sales

The general drop in the growth rates appeared to have impelled for serial spikes in month on month variabilities

 

So I detailed the growth rates based on the first two quarters and the first semester.

Part of the spike in the first quarter had indeed been due to holidays. February’s single digit growth of 7.52% was offset by March’s 32.9%.

In the second quarter, the slowdown became apparent. Monthly growth rates plunged to 4.84% in April, 17% in May and 14.06% in June. Only two months registered above 20% growth rates in the first half of the year.

Politicking and increased government interventions will likely compound on the industry’s woes.

The proposed increase in excise taxes will further smother the ongoing corrosion of car sales. However, prior to either the passage or the enactment of the tax reform law (TRAIN), the initial response would likely be a surge in sales. This would be equivalent to selling the price increase.

But over the longer period, higher prices will most likely reduce demand.

Ride sharing apps Grab and Uber were recently fined Php 5 million each for the violations of accreditations. In response, Grab announced that it would be suspending accreditations of new operators. The likely result will be reduced demand for cars for the ride sharing industry. The other consequence would likely be for Grab and Uber to pass their fines to consumers through higher prices. Though of course, Grab denies this. Moreover, the government announced that it would start impounding Grab and Uber vehicles and fine operators and drivers should they lack franchised documents.

With the intensifying war against the ride sharing industry, the commuting public will be further inconvenienced by the reduced supply of vehicles for hire. That’s aside from longer travel hours and increased personal safety risk when dealing with discourteous and arrogant cab drivers

Additionally, reduced means of livelihood increases public safety risks

So where would the marginal demand for cars, shopping malls, real estate and hotels come from now???????????