To save money, rich dudes are buying brand-new luxury cars this year

The title is not a typographical error, or the result of some late-night libation. If you haven’t been paying attention, the biggest news in the automotive industry these days is the expected adjustment of excise duty levied upon motor vehicles sold in the Philippines. The Department of Finance (DoF), tasked to implement a progressive tax reform that seeks to help the Duterte administration with its ambitious infrastructure projects, has submitted a proposal to overhaul automobile excise rates, which Congress has already approved.

The ball is now in the Senate court, where the chair of the committee on ways and means wants DoF to consider imposing higher taxes on a household’s third and fourth vehicles instead. DoF wants to execute the reform as early as Jan. 1, 2018.

The proposal, understandably, sent the industry into a panic. Theoretical figures floated on social media, many of which were grossly exaggerated. Which prompted DoF to issue a clarification earlier this month with regard to the tax reform’s impact on car prices.

First, the department wants to assure car buyers that mass-market models will be the least affected. A Hyundai Eon currently priced at P508,000, for instance, will sell for just P517,103 under the revised excise scheme. A P680,000 Mitsubishi Mirage, meanwhile, will go for P692,186, and a P902,000 Toyota Vios will cost P942,678. DoF argues that the price increases for these car models will ultimately be offset by lower personal income taxes under the tax reform program.

Second, DoF wants to point out that commercial vehicles used for businesses (pickups, buses, cargo vans, jeepneys and trucks) are “excluded from the proposed auto excise tax adjustments.”

The price adjustment increases as you go up the model hierarchy, but for mass-market brands the pricing revision should still be manageable even for their more premium offerings. A P1,739,000 Ford Everest is seen to go up to P1,994,898. While that’s a P255,898 surge, customers in this price range might not even notice the increase with a multiyear financing arrangement.

“We expect a dip in sales for the likes of the Camry and the Alphard, but not by much,” says Toyota dealer principal Rene O. So. “Honestly, we’d be happy with a 20% drop [for the premium models].”

The biggest impact of the tax reform, then, will be heavily felt in the luxury segment, where prices are bound to shoot up anywhere from P2 million to P10 million, depending on the model. DoF reckons that a P6,590,000 BMW X5 will have an adjusted price of P8,409,328 — a considerable increase of P1,819,328. A luxury car that is currently priced at P10 million, according to DoF, will sell for P13,194,240, while one that now goes for P20 million will cost P27,226,240.

These are not inconsequential amounts, even among the insanely affluent.

“I don’t care if you’re obscenely rich, you’re going to balk at the prospect of a P10-million sports car suddenly selling for P15 or 18 million,” shares Autostrada Motore chairman and president Wellington C. Soong, who imports and sells Ferrari and Maserati cars in the country.

Obviously, if you’re in the market for a brand-new luxury vehicle now or in the near future, the wise decision is to make the purchase before the adjusted excise rate for automobiles kicks in. And that’s exactly what’s happening in the exclusive segment.

“Based on feedback from our customers and dealer partners, purchases are being advanced to avoid the pending price adjustment,” reveals Asian Carmakers Corp. (BMW) president Maricar C. Parco. “We’ve experienced growth in the sales of our flagship model, the 7 Series. There are also a few corporate clients who have advanced their car plan schedules to take advantage of current prices.”

In July and June this year, BMW sold 180 and 152 units, respectively. During the same months in 2016, the German brand made do with 45 and 70 units. Auto Nation Group, which distributes Mercedes-Benz vehicles locally, reported 152 sold units for July this year, versus just 69 for the same month last year.

Another luxury marque enjoying a huge jump in sales in 2017 is Lexus, Toyota’s opulent nameplate. Business is so good that its seven-month tally from January to July this year (683 units) has already exceeded its 12-month performance last year (670). Lexus moved 101 units in May, 156 in June, and 116 in July. Comparatively, the numbers were 33, 68 and 45 last year.

“Our sales have doubled, and yes, you can say that this is due to the anticipated price increase next year,” confirms former Lexus Manila president Danny M. Isla, who is still the company’s consultant for its high-profile clients. “Those who have plans of buying a luxury car next year deem it practical to buy now rather than later.”

Ms. Parco agrees, “If you’re looking to purchase a premium vehicle in the next six months, now is a good time to do it.”

It therefore makes natural sense on the part of luxury car distributors to launch their latest models this year. A slew of ritzy automobiles have already made their way to our shores in 2017, including the Audi Q2, the BMW 5 Series, the Ferrari 488 Spider, the Lexus LC500, the Mercedes-Benz GLA and the Volvo V90. After all, no one wants to turn away a loaded customer ready to take home a luxury car today — and drive said customer to the competition.

“We’re seeing a sales increase the past three quarters primarily because we’ve had two model launches, and the buyers are thinking of the impending excise adjustment,” admits Scandinavian Motors Corp. (Volvo) president Albert B. Arcilla. “We expect to see more inquiries toward the end of the year. Hopefully, we will be able to bring in the units before the [tax reform] implementation.”

The problem for luxury car distributors, however, arrives in 2018, when the adjusted automotive excise takes effect. “This will certainly have an impact on sales next year,” warns Mr. Isla. “A significant impact.”

For now, the rich just want to save some money.

You may e-mail the author at vbsarne@visor.ph.