2018 should be a very interesting, if not exciting year, for the auto industry.
First, mainstream media provides us the tone of December performance for the auto industry.
Sales of motor vehicles in 2017 grew by 18.4 percent to 425,673 units, exceeding the 400,500 unit sales target and nearly hitting the overall industry forecast of 450,000 units on strong surge in December sales as buyers tried to avoid the implementation of higher excise tax starting January 1, 2018, a report by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA) showed.
Manila Bulletin, Motor vehicles sales register 18.4% growth in 2017; 425,673 units sold January 18, 2018
The other buoyant headlines:
Philippine Canada Inquirer Car sales up 18% in 2017 to over 425K units, January 18, 2018
Manila Times Automakers top 2017 sales target, January 18, 2018
Malaya Auto sales surge ahead of tax hike, January 18, 2018
Aside from frontloading of sales due to the excise tax, the other factors responsible for the surge, to quote an official, were: “We ended 2017 with a positive note. Aggressive promos, new model updates and the hard work of members helped contribute to expanding the Philippine market.”
So, easy money PLUS tax hikes drew in demand.
And prospects for 2018: “While exceeding our sales target for the year, we remain cautious in our projection for 2018. CAMPI remains confident that the market will be able to adjust to the new auto excise tax in 2018” From Auto Industriya Philippine auto sales close 2017 with 45,494 units sold January 18, 2018
The news reports, which sounded like press releases, cherry-picked on data. The comparisons were limited to magnify the gains.
As anticipated, the auto market responded to the TRAIN’s “selling a price increase”.
December’s 45,494 sales spike was indeed a record high (upper window). But the record, like the PSEi 30, was unnatural. In reaction to the drastic changes in tax rates, future demand for autos was advanced as sales for November and December
Sure, December’s 33.4%, which topped March 2017’s 32.9%, signified the biggest monthly gain of 2017.
However, December’s impressive showing was hardly adequate to reverse the downtrend in the growth rate of auto sales. (bottom window) It barely broke the March high.
2017 also registered the best December growth rate in 3 years!
Even so, December’s 33.4% wasn’t enough to bolster 4Q sales in 2017 (25.05%) to top 2015’s growth rate at 26.03%.
Moreover, despite the record surge in December 2017, annual sales growth at 18.4% was the slowest since 2015! Sales growth for 2015 was at 22.79% while 2016 registered a sizzling 24.6%. That’s a wide gap!
And without the TRAIN’s stimulus in sales of November and December; 2017’s sales growth could have slumped by even more!
The annual and quarterly growth rate reveal the extent of weakness in auto sales even with the TRAIN stimulus.
The CAMPI official expressed cautious optimism in their projection for 2018. They further stated that they remain “confident that the market will be able to adjust to the new auto excise tax in 2018”
The Philippine Statistic Authority’s November industrial production data on transportation production exhibited a measly .4% increase following two consecutive months of contraction.
If the PSA’s data has been accurate, then the data should manifest of the auto industry real sentiment. They have already taken defensive measures in anticipation of a substantial slowdown in sales. They are more cautious than they are optimistic.
Of course, the DoF and the industry believe that G-R-O-W-T-H will be sufficient enough to offset price increases from the new steep tax rates. [Auto Industry: Which will Prevail: The DoF on HB 5636 (Tax Reform) or the Law of Demand? January 4, 2018]
They probably think that the demand for autos is about Veblen good, whereby price increases would cause quantity demanded to increase, in defiance of the law of demand.
So aside from the ramification from the excise tax (see bottom pane), as I noted above and in the past*, another very significant factor is the issue of declining growth rate of car sales PRIOR to RA 10963.
*See TRAIN’s (Tax Reform) Boost on Auto Sales: November’s Mediocre 23.8% Growth December 14, 2018
These twin forces will shape auto sales in 2018.
Remember, slowing auto sales will not be confined to the core industry. It will affect the industry’s upstream and downstream sectors**.
[**Has Peak Auto Sales Arrived? Part 2; Downshift in Sales Growth Spillover to Auto Production! September 17, 2017]
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