The ripple effects of the current car sales slump

Based on figures released by official channels, the Philippine automotive industry is going through a downturn right now in terms of sales. Compared to January-June numbers in 2017, first-half sales this year are fewer by some 25,000 units. That’s certainly a substantial six-month year-on-year decline by whatever yardstick you measure it against.
A sales slump was somehow already expected by industry observers last year, as car buyers rushed to advance their purchases in an effort to avoid the perceived price-padding impact of the TRAIN law. But nobody saw the inflation that is now battering the average consumer’s spending capability. Combine these factors with the ever-worsening traffic situation in Metro Manila and other busy city centers around the country, and the new-car business is sure to slow down.
Now, here’s the interesting part: Because the industry sold an all-time record of around 470,000 passenger vehicles last year, the major players all projected their 2018 forecasts based on their 2017 performance. But what happens when their overly optimistic numbers end up being incompatible with the actual demand? That’s right — mounting inventories collecting dust in stockyards, with more shipments continuing to pour in. Remember that imported stocks are ordered months ahead of the delivery. You can’t halt the influx of units at a moment’s notice like you’re turning off a mere faucet. When you’re part of a global supply chain, you have to fulfill your commitments by hook or by crook, or you’ll disrupt the brand’s production schedules.
So now, car distributors are scrambling to deal with slow-moving inventories. Word has it that our importers are, in fact, running out of storage locations for their unsold vehicles. I even saw units belonging to the Bonifacio Global City dealership of a Japanese automaker sitting in an open parking lot owned by a commercial complex. Obviously, the dealer no longer had parking space for said cars, and had to resort to this arrangement.
I hear businessmen who own expansive vacant lots are now raking it in by renting their properties to car distributors.
It gets even more alarming: An executive employed by a Japanese vehicle manufacturer told me that his company had already stopped production shifts at its Laguna facility to manage its ballooning inventory.
Of course, the logical thing to do for importers is to adjust their vehicle orders from their vehicle suppliers. But as an industry insider pointed out to me, it takes three to four months for such adjustment requests to be granted. So those that are only now starting to notify their regional principals of their dire situation are bound to still receive shipments of their original orders.
Unfortunately, some industry observers don’t expect the current sales slump to end anytime soon. So much so that they’re ready to write off the rest of the year and just look forward to 2019. The good news? The same observers believe things will start to pick up again next year. Until then, car distributors and dealerships will have to keep looking for creative ways to either store or get rid of their unsold units.