The need to own cars

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WHENEVER I do my spiel about the product offerings of the Development Bank of the Philippines (DBP), I highlight our aversion to providing car loans. In jest, I say we do not want to add to the traffic problem, especially in urban cities. Clearly, car financing is a staple of the private banking sector and it does not make development and economic sense for DBP to put its hat in the circle, even if the numbers will indicate it is probably one of the more lucrative banking/finance segments.

On a more basic note, though, one might want to ask: do we really want to encourage more vehicles to ply our roads given the limitations of our infrastructure network? The carrying capacity of our highways is limited and this is obviously seen in the unavoidable traffic jams. There were years in the past when we only see monstrous jams during holiday seasons. Today, it is an everyday occurrence.

In advanced nations today, there is a trend that may look odd to us Filipinos. Annual global vehicle sales is falling. The prediction was vehicles sales worldwide will hit 100 million by now. According to some research, it actually is only around 94.2 million in 2018, an actual 1 million decline from 2017. It still continues to grow in emerging markets like China, India and Russia. In the Philippines, car sales declined for the first time in 2018 after eight consecutive years of growth but further growth is projected. Especially in the developed countries, the decline is palpable.

This doesn’t mean less people ride cars; only that less people are buying cars. The trend is fueled by the proliferation of ride-hailing options like Uber, Lyft and Grab. Especially in the megacities, there is concern over traffic, pollution and other negative externalities of private vehicle ownership. Singapore is tightening rules on car ownership to reduce congestion and pollution. The impact of infrastructure, i.e. subways, MRTs and the like, also add to the “competition”. Other mobility servers are appearing like electric scooters, motorcycles, and in many urban centers, there are restrictions to car access similar to our MMDA number coding.

Self-driving cars and robo-taxis are at their infancy but with improved technology, it should gain traction. Cost of car ownership will get prohibitive. In the Philippines, the requirement for vehicle owners to have dedicated garages is not yet a law but it is a painful reality that deserves to be given serious consideration sooner than later. Otherwise, our streets will be virtual parking space. Some people even say that in today’s traffic gridlock, EDSA sure looks like one big parking space.

The Philippines will be at the tail end of this revolution simply because our public transportation system still lags behind. At some point in the future, while Filipinos boast owning cars, our counterparts in the developed states are simply renting. Is this good news or bad news? At the end of the day it will be about convenience and economics.

Personally, I think this trend toward a carless society is still far out in the future but the young people of today view cars with a different mindset than my generation. I used to believe having my own car is part of the aspiration, next to owning a house. But the youth of today have a different perspective. Some young staffers save not for the new house or car, but for travel. They are content with ride sharing apps. And if only MRTs and LRTs are working well enough, they would not even consider buying a car.

In the National Economic and Development Authority’s Ambisyon Natin 2040, Filipinos dream of a gross monthly income of Php120,000 and owing at least one car. If all technological advances in the vehicle industry happen, and the infrastructure program of government gets implemented the right way, maybe the need for at least one car will be less felt. This is important as it will free disposable income for other critical needs of the Filipino family.

The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX.)


Benel D. Lagua is Executive Vice President at the Development Bank of the Philippines. He is an active FINEX member and a long time advocate of risk-based lending for SMEs.