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The car buyers’ behavior

The year 2018 has shown ongoing shifts when it comes to the preferences and attitudes of Filipino car buyers. As this year witnessed the implementation of Tax Reform for Acceleration and Inclusion (TRAIN) law, rising of prices, launching of new cars, and other developments, car buyers are seemingly making more careful decisions in which cars they purchase.

AutoDeal, a notable car-buying Web site in the Philippines, releases the Philippine Automotive Industry Report (also called Insights Report) every quarter of the year. Using the data gathered from the transactions transpiring in the online platform, the quarterly report reflects not only the behavior of the automotive industry but also the preferences of buyers.

The Industry Reports from the first half of the year reported on what types of vehicles buyers are interested to purchase. In the first quarter, AutoDeal found out that “[i]nterest levels in subcompacts, light pickups, MPV/AUV’s, compact crossovers and vans/minivans continue to rise.”

In the second quarter, “[s]ubcompact cars, light pickup trucks and compact crossovers continue to be the preferred purchases of choice”, while mid-size SUVs still earn the interests of consumers with a 10.59% rise from the first quarter.

Meanwhile, Association of Vehicle Importers and Distributors (AVID), a private, nonstock, nonprofit business association representing world-class automotive brands, stated in its sales performance and outlook published last October on its Web site that the “[demand] for Passenger Cars (PC) continues to dip in favor of SUVs with 23,531 units sold in the first nine months of the year, down by 20%.”

This agrees with what some industry executives told some media outfits. In an interview with Philippine car-oriented Web site CarGuide.ph, deputy chairman and managing director of Tan Chong International Ltd. Glenn Tan has observed “the buyer’s shifting preference away from Pickup-based Passenger Vehicles or PPVs” and towards compact SUVs.

For Mr. Tan, these kinds of vehicles “can easily go toe-to-toe against PPVs when it comes to ground clearance and even water wading, two very important considerations for Filipino buyers.” He adds: “[T]hey’re easier to drive and park in traffic dense settings like in Manila. They are also more comfortable and handle better.”

Moreover, a regional media outfit quoted Steve Gingco, general manager of Isuzu Cebu Inc., regarding what consumers prefer, especially as price is considered. “[B]uyers’ preferences have [been] shifting toward smaller sedan vehicles, compact sport utility vehicles (SUV) and pickup models,” he said.

“With the Philippines still experiencing the onset of the motorization stage when per capita income reaches $3,000 starting in 2014, this trend of preference due to price affordability is consistent with the basic mobilization needs of the buyers and a view of value for money in buying SUVs,” Mr. Gingco added.

A recent research published by online vehicle marketplace Carmudi PH in its Carmudi Insider website also confirms this trend. In its study entitled “The Changing Landscape of the Car Industry in Asia: Automotive Search Preferences in the Philippines 2014 — 2016”, Carmudi reported that under the used car segment, “three body styles were the most popular with searchers for both years — the Multi Purpose Vehicle (MPV), sedan and SUV.”

In support of this finding, Paolo Brambilla, general sales manager of Audi Philippines, was quoted as saying: “SUVs and compact sedans are the most popular body styles with our buyers. Most of these buyers are young executives, and the pricing of these said body types falls within their executive car plans, and meets their needs and wants as well.”

In addition, AutoDeal’s third quarter Insight Report revealed the most inquired for brands. Starting from the highest, the top 10 brands noted are the following: Toyota, Ford, Mitsubishi, Nissan, Hyundai, Suzuki, Honda, Chevrolet, Mazda and Isuzu.

When it comes to how consumers do their car-shopping, the AutoDeal Insights Reports noted that from 64.8% in the first quarter, the percentage of mobile use raised to 74.4% in the third quarter. In other words, “[c]onsumers are predominantly car-shopping using mobile devices.”

Regarding the length of research and purchase buyers undertake, the Insight Report from the first quarter wrote that “[prospective buyers] will take longer to research and transact their vehicle purchases. This is indicated by more consumers stating that their buying time would be in 3-6 months or 6-12 months period.”

In terms of purchase urgency, the Insights Report from third quarter stated that it takes 44 days for buyers in the online platform to purchase after their online inquiry. However, as stated from that same report, “[w]hile total online car buying inquiries are up by 17% year on year… we’ve observed that the purchase intent continues to be persistently slower than 2017. As we complete Q3 2018, it continues to become increasingly apparent that the speed in which consumers aim to purchase is unlikely to accelerate to the same astonishing pace that we experienced at the end of 2017.” — Adrian Paul B. Conoza

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Sidebar | Expert Opinions

Here are some tips that will help you figure out if your great-grandmother’s tea set, your uncle’s maps—or any ageing item hiding in an attic or basement—still holds value.

The best and simplest way is to have your item appraised by experts. One of the Philippines’ auction houses, Casa de Memoria, for instance, has a research specialist who will meticulously do research on an object, and assess its provenance and value.

“We can have it appraised to what the current market value of the piece of that age is—how much it would cost today, what the collectability is, and see how much a collector would want of it,” said Camille Lhuillier, one of the founders of Casa de Memoria who also serves as the house’s marketing manager.

The factors to consider when determining the value of an item is its age, its time period, the artist (if there is one), what the piece represents, and its current condition. Casa de Memoria specializes in antiques and heirloom pieces. For consignments for fine art pieces like paintings, drawings, prints, and sculptures, and fashion items like watches and jewelry, meanwhile, you can go to other auction house in the country like Finale Auctions, Leon Gallery, and Salcedo Auctions.

Finale Auctions’ owner Evita Sarena affirmed that the best way to know the value of an item is for “collectors or their heirs to go to experts of those things to have their pieces assessed and appraised.” Once an item is proven of value, you can have your heirloom ring or painting consigned at auction houses. – NPDG

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Analysts widely expect rate hike pause

By Melissa Luz T. Lopez
Senior Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) may finally take a breather and keep benchmark interest rates steady this week, analysts said in a BusinessWorld poll, agreeing that inflation seems to be on its way down.
All but one of the 12 economists asked last week said that the Monetary Board will hold off further policy rate increases after five consecutive tightening moves since May.
The BSP will hold its eighth and last policy review for 2018 on Dec. 13. So far, benchmark rates have risen by a total of 175 basis points (bp), with the key rate now at a nine-year high of 4.75%.
“We believe that the Monetary Board will keep policy settings unchanged in its Dec. 15 meeting. The November print confirms that, after 10 straight months of accelerating, headline inflation has taken a turn and is likely to head back to target by next year,” said Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands.
Headline inflation slowed to six percent last month from a nine-year-high 6.7% in September and October, helped by a sharp drop in world crude prices and food costs as supply normalized.
The Philippine Statistics Authority had said that November data affirm a “decreasing trend” in inflation rate, with the month-on-month pace even posting a 0.3% decline to mark the first drop after a steady ascent since the year began.
Economic managers of President Rodrigo R. Duterte expect inflation to “stabilize further” going into 2019.
Shashank Mendiratta, economist at ANZ Research, said he expects the BSP to steady rates as price pressures from food and oil are “finally dissipating,” adding that inflation outlook now looks “benign.”
Prices of widely used goods increased by 5.2% in January-November, just below the central bank’s 5.3% forecast for the full year though above the 2-4% target range.
Next year, the central bank expects inflation to decelerate to 3.5%, pulled down by lower readings, especially in the second half.
However, one analyst said there may still be a chance for another rate hike this week. DBS economist Masyita Crystallin said a faster core inflation rate — which strips out volatile prices of energy and food — may prompt the BSP to take action. “Philippines real rates are still the lowest among peers, so we think several more rate hikes between December and mid-2019 is likely,” Ms. Crystallin added when sought for comment.
BSP Governor Nestor A. Espenilla, Jr. last week cited the need to “pay close attention” to rising core inflation, which zoomed to 5.1% from 4.9% in October.
Interest rate hikes from the central bank are meant to temper inflation expectations that have been a key driver of faster overall price increases since the year began.
On the other hand, some analysts expect that the “proactive” 25bp hike announced last month would be the last from the BSP. They see monetary policy makers now looking out for the right time to reverse and introduce rate cuts some time in 2019.
“If the economy continues to stabilize next year (inflation rate and exchange rate), we might see interest rate cuts by 25 basis points,” said Mitzie Irene P. Conchada, associate dean at the De La Salle University School of Economics.
Benchmark rates have risen sharply coming from a 2.5-3.5% range over the last two years.
Economics professors Alvin P. Ang and Victor A. Abola both expect the BSP to wait for inflation to settle below four percent before a rate cut is introduced, while bank analysts Ruben Carlo O. Asuncion and Nicholas Antonio T. Mapa said a fresh reduction in bank reserves may come first.
Reducing the mandated bank reserves will free up more cash into the financial system, as lenders can now deploy more funds for lending and investments.
The RRR is currently at 18%, down from 20% previously after two cuts that took effect earlier this year. Mr. Espenilla wants the level to drop to single-digit by 2023.

S&P: Loan growth to slow in 2019

LOAN GROWTH will likely ease in 2019 as higher interest rates bite, S&P Global Ratings said, even as it noted that heavy funding needs for the aggressive infrastructure spending program will boost lending.
Nikita Anand, credit analyst at S&P, said credit growth will likely slow next year as successive rate hikes introduced by the Bangko Sentral ng Pilipinas (BSP) are increasingly reflected in market rates, which in turn could dampen overall economic activity. “We expect corporate and household loan demand of around 14%-15% in 2019, tempered slightly by a 175-basis-point (bp) increase in policy rates in 2018 to date,” the debt watcher said in its Asia-Pacific Banking Outlook 2019 report published last week.
The BSP has fired off five consecutive rate hikes since May in response to surging inflation.
Many economists now expect policy makers to hold fire and keep benchmark interest rates steady as overall price increases appear to be easing of late.
From an 18.32% increase in bank lending in 2017, S&P projects growth to decelerate to 15% this year and in 2019 as higher borrowing costs weigh on loan demand.
Bank lending posted an 18.1% year-on-year increase in October, according to latest BSP data.
BUOYED BY ‘BUILD, BUILD, BUILD’
Despite this, the credit rater expects a big boost from the public sector.
“However, the current administration’s ‘Build, Build, Build’ scheme may provide further boost to infrastructure spending in the country and aid credit growth via the multiplier effect until the end of the president’s term in 2022,” Ms. Anand said.
The state’s planned rollout of 75 big-ticket projects will be funded by a mix of public funding, as well as local and external borrowings.
Prior to this, S&P had said that higher interest rates are unlikely to unduly weigh on the financial system, given the fact that both household and corporate debt remain “modest” and that borrowing costs are rising from a low base.
Economic conditions are also seen “favorable” for further expansion.
“We expect robust economic growth to remain supportive of the domestic credit environment,” S&P said in its report.
“However, persistent increases in interest rates may begin to affect credit growth as well as the debt repayment capacity of borrowers, particularly those belonging to smaller, low-income groups.”
Higher interest rates are not expected to erode asset quality, with S&P seeing that soured loans will take a low, steady share of 3.5% of total debts.
At the same time, the credit rater flagged that currency volatility as well as fast inflation will be the biggest risks to the banking system, even as these should be “manageable” as lenders have more than enough capital buffers to withstand such shocks.
“While the banking industry’s foreign currency exposure is low (direct lending as well as external debt of corporates), a sustained depreciation in the peso could contribute to increasing inflation and consequently temper real economic growth,” the debt watcher said.
The peso has lately pared losses as it recovered to P52 versus the dollar, down from 12-year lows the previous months.
S&P has downgraded its Philippine growth forecast to 6.5% this year from 6.7%, matching the low end of the government’s revised 6.5-6.9% estimate. The Philippines holds a “BBB” rating — a notch above minimum investment grade — with a “positive” outlook from S&P since April. — Melissa Luz T. Lopez

Gov’t moves to start work on worst-hit Marawi sites

THE GOVERNMENT is looking to draw P2.4 billion from unprogrammed funds in the 2018 budget to help kick-start rehabilitation of Marawi City areas that were the most damaged in last year’s five-month battle with Islamic State-inspired local militants, a senior economic planning official said last week.
A private consortium of Filipino and Chinese firms was initially the main proponent to rehabilitate Marawi City’s so-called “ground zero,” or the most affected area (MAA), through a public-private partnership (PPP), but it was eventually disqualified after failing to show financial capacity to undertake the task.
“Ang mas concern ngayon (The main concern now) is how to fund the projects in the MAA. Based on the latest discussions, pwede naman i-tap ‘yung (we can tap) unprogrammed funds sa GAA (General Appropriations Act of) 2018. It can be unlocked,” NEDA Undersecretary for Regional Development Adoracion M. Navarro told reporters on Thursday.
“Sa ngayon, ang tinitingnan nasa (We are now looking at) P2.4 billion, kasi ‘yung (of the) GAA unprogrammed (funds) is P5 billion… Pero hindi pa ‘yun (but that isn’t) final kasi it will still be based on the submission of Task Force Bangon Marawi implementing agencies.”
Unprogrammed funds (UF) in the national budget can be tapped under certain conditions, such as excess government revenues.
“There are funds in the UF for Marawi and balances from the NDRRMC (National Disaster Risk Reduction and Management Council),” Budget Undersecretary Laura B. Pascua said in a separate mobile phone message on Sunday when asked for details.
The rehabilitation plan for the MAA is separate from the Bangon Marawi Comprehensive Rehabilitation and Recovery Program (BMCRRP), which covers battle-affected locations outside the most devastated area.
The government has set a five-year BMCRRP. It has allocated some P10 billion for this purpose from this year’s budget and raised P35 billion in pledges from multilateral development banks, donor countries, as well as local and international organizations, in the form of concessional loans and grants. These funds are applicable for rehabilitation of locations outside the MAA.
But with the recent setback in the PPP plan for the MAA, the government has to now step in.
“Sa ngayon, ’yan na muna pero option rin naman ’yung ibang modalities. Let’s see kung ano ang magiging final plan (That is it for now, but there are other options. Let’s see what will be the final plan for the most-affected area),” said Ms. Navarro.
The government also plans to sell about P13.5 billion in retail Treasury bonds for Marawi City’s rehabilitation.
Rehabilitation began on Oct. 30 after about a four-month delay, focused on debris management by local contractor FINMAT International Resources, Incorporated.
The succeeding tranches of the five-part rehabilitation of the MAA include: construction of roads, related infrastructure and underground facilities; road widening; right-of-way acquisition; as well as a master development plan with feasibility studies for new projects like public parks, barangay halls, public markets, port facilities, transport hubs, school buildings, memorial sites, a museum and even a convention center. — Elijah J. C. Tubayan

Cigarette-making machinery the latest front in government’s war on smuggling

CIGARETTE-MAKING machines from China continue to enter the country, following the discovery of unregulated cigarette factories, the Department of Finance (DoF) said.
In a statement over the weekend, Finance Secretary Carlos G. Dominguez III ordered the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC) to work closely with their counterparts in Beijing to stop the illegal entry of such machinery.
“What we have to stop is the import of the equipment, which is coming from China,” Mr. Dominguez said.
The DoF said that based on raids conducted by the BIR earlier this year, smugglers have shifted to illegally importing cigarette machines capable of making fake versions of popular brands here, after the government cracked down on the illegal entry of fake cigarettes and fake tax stamps.
“They have graduated from fake stamps to fake cigarettes,” BIR Commissioner Caesar R. Dulay said in the same statement.
Starting June, the BIR has confiscated cigarette-making machines, packing machines, filter-making machines, and fake tax stamps found in warehouses in Pampanga and Cagayan de Oro, as well as several other warehouses elsewhere in Luzon and in Mindanao.
The proliferation of counterfeit cigarettes is a revenue problem for the government, which collects an excise tax on cigarettes.
Philip Morris Fortune Tobacco Corp. Inc. (PMFTC) and JTI Philippines have pressed the BIR to clamp down on fake cigarettes. Last week, the National Bureau of Investigation, acting on a tip from PMFTC, raided an unlicensed cigarette factory in Pangasinan that is said to be the country’s main source of fake cigarettes.
Mr. Dulay has said fake cigarettes have become more prevalent, especially outside Metro Manila, after the government imposed higher excise taxes on tobacco products in January.
Another bill raising tobacco taxes further is advancing in Congress after the House of Representatives approved it on final reading last week, while the Senate has started committee-level discussions on its own counterpart measure.
Excise tax on tobacco products went up to P35 per pack in July under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN), from P32.50 in January and P30 in 2017. This tax will rise further to P37.50 in 2020 and to P40 in 2022.
The House last week approved on final reading House Bill No. 8677, which proposes to increase the excise tax on tobacco products by P2.50 per pack every year, starting at P37.50 in July 2019, to P45 in July 2022, with a four-percent annual hike thereafter. This scheme takes the place of TRAIN’s provision once the new law is enacted.
The DoF had wanted a steeper hike to P60 per pack in 2019, with an annual increase of nine percent thereafter. It is packaging the legislation as a health measure to discourage cigarette consumption, with support from health advocates.
The government raised P106.89 billion from the tobacco excise tax in the nine months to September, accounting for six percent of its overall tax take. — Elijah Joseph C. Tubayan

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