Rearview Reflections: The Philippine automotive industry in 2023

As if on a never-ending highway, the world moves ever forward; so does the Philippine automotive industry. In January of this year, the industry had seen one of the biggest years in recent history, even from before the pandemic.

Sales from 2022 soared past 352,000, breaching the industry’s target for units sold on the back of resurging demand. Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) President Rommel R. Gutierrez said the full-year 2022 sales figure “brings renewed optimism” for the local auto industry in 2023, adding that the heights reached in December alone was last recorded in 2017.

Globally, the Philippine auto industry is not alone in its confidence. According to a research report, “Global Automotive Industry Outlook 2024,” published by revenue impact firm MarketsandMarkets this month, the strong recovery in commercial vehicles and the electrification trend in passenger cars are expected to provide a consistent year-on-year growth rate of 5%-7%, causing global automotive sales to rise from over 91 million units in 2023 to over 96 million units by 2024.

In 2023, the global automotive sector showed strong growth even amidst geopolitical tensions and economic uncertainty. The automobile industry as a whole saw sales volumes increase by 10%-15% to more than 91 million units during the year, with notable gains in both the passenger car and commercial vehicle markets.

According to the data, there was also a bump in the commercial vehicle segment from 18% to 20% compared to the previous year. Commercial vehicle sales in the Asia-Pacific region, and especially in China and India, were driven by robust economic growth and an uptick in infrastructure projects.

Notably, the market for electric passenger cars increased by more than 35% from the previous year.

The research noted, however, that North American and European markets are likely to face further obstacles like rising interest rates, commodity price inflation, and geopolitical concerns. Nevertheless, the Asia-Pacific area is expected to make significant strides, propelled by the presence of large automobile markets and big developing economies, especially in India and China.

For a market like the Philippines, it is likely to see similar numbers in terms of growth and development. The latest joint data from the CAMPI and the Truck Manufacturers Association (TMA) showed that new motor vehicle sales reached 314,843 units from January to September, growing at a rate of 26.9% more than the 248,154 units in the same period last year.

“The auto market remained resilient since 2021 and current trend indicates that we will breach the highest pre-pandemic sales performance and achieve full industry recovery in 2023,” CAMPI’s Mr. Guiterrez said.

Because of this, CAMPI has revised its 2023 sales forecast to 423,000 units, projecting a 20% growth from its 2022 actual sales performance. The group also said they are targeting a 10%-15% growth, with sales projected at 395,000 units.

“We recorded the highest monthly sales performance in September and we hope that positive consumer outlook will be sustained in the fourth quarter,” Mr. Gutierrez said.

Looking forward

Despite all the good news, however, cautious optimism is warranted in 2024.

According to Fitch Ratings’ outlook for the global auto sector, even as improved supply chains allow for higher global vehicle production in 2024, overall sales will be tempered by less robust economic conditions, particularly in the US and China.

“We expect global sales and production to rise about 4% in 2024. Fitch forecasts lower economic growth and higher interest rates will dampen overall vehicle demand in 2024, but high pent-up demand due to industry under production over the past several years is likely to support sales,” the renowned rating agency noted.

“More normalized vehicle pricing and mix will bring back some customers priced out of the market. As vehicle production is running at, or slightly above, recessionary levels for nearly three years, we do not expect a sales decline in 2024 but sales are likely to remain well below pre-pandemic levels.”

The Economist also weighed in on the industry’s outlook for the coming year, writing that, “The automotive industry will face another subdued year in 2024, weighed down by slow consumer spending, high interest rates and disruption to supply chains due to geopolitical tensions. The only bright spot will be the electric vehicles market, with sales expected to soar by 21% as governments and consumers try to mitigate the worsening effects of climate change.”

For the Philippine auto industry to overcome the impact of a globally challenging economic landscape, it must take into consideration the state of the consumer market and the key trends driving innovation in the field, such as electrification, smart connectivity, and integrated manufacturing.

With its meteoric rise in popularity in the past several years, electrification will only continue to be a game-changer in the business.

According to a separate analysis from the International Energy Agency, electric car sales are expected to account for 18% of total car sales in 2023.

This can further be bolstered by national policies and incentives that would encourage faster adoption among the population, especially as oil prices remain volatile. According to the agency, the rollout of electric vehicles will eliminate the need for five million barrels of oil a day by 2030.

Already, an increasing number of car companies are funding the research and development of electric vehicles, such as Aston Martin, Jaguar Land Rover, Volvo, and General Motors. In order to fund the anticipated release of about 70 e-models over the next decade, Volkswagen has announced that it has allocated over €30 billion ($32.2 billion) for the initiative by the end of 2023.

Meanwhile, as the Philippines accelerates its push for more developed infrastructure and decentralizing Metro Manila, it can also stand to benefit from the trend of introducing smarter connectivity technologies for newer car models.

Cars today can interact with their surroundings through internet connectivity, and as such, can be used to gather data on the development of smarter roads and cities.

Consequently, car manufacturers need to adopt a mindset similar to software developers, where vehicles of all types are able to communicate wirelessly, integrate infotainment systems, and aid drivers, allowing them to engage in real-time interactions with other vehicles, traffic control systems, and cloud services. This will pave the way for smart home integration, real-time traffic data, and personalized services.

Car makers can reach a wider audience as a result. All passengers, not just the driver, are now the center of attention. Customers of the future will desire digital entertainment options in their vehicles, such as karaoke rooms or reading nooks.

The advantages of network connectivity can also extend to the designers themselves, wherein they can analyze real-time data and work together remotely on the cloud to create the automobiles of the future.

Finally, advancements in the integration of information technology (IT) systems with operational technology (OT) systems can drive innovation and productivity for manufacturers.

From an IT perspective, there are currently a plethora of artificial intelligence tools and apps, like ChatGPT, to choose from. On the operational side, there are more recent uses such as robotic arms with articulated limbs and machine vision. With the combinatorial approach, teams have greater leeway to pick and choose which solutions will deliver the most value in manufacturing.

While one might be hard-pressed to expect the Philippines to lead in the adoption of these trends, slowly incorporating similar technology and ideas into the development of the auto industry could help accelerate its never-ending drive towards progress. — Bjorn Biel M. Beltran