Cautious Optimism first quarter of 2011 reveals trends for rest of the year

Manila, Philippines - “Cautiously Optimistic,” is a phrase first coined by Wall Street to connote a guarded sense of well-being things maybe going very well, but don’t let the success get to you. After a booming 2010 in terms of new car sales, the Philippine automotive industry is certainly on a rebound. However, as much as everyone’s enjoying record sales, external forces are threatening to spoil the party. More than anything, these could set the precedent not only for the months ahead, but for the entire year or years to come.

Rising Fuel Prices = Rise of the Fuel-Efficient Cars

Anyone who has been near a gasoline station knows how it stings the wallet to fill up. Thus, new car buyers are now learning to downsize or are putting off their new car purchase altogether. Data from the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) may have reported an 8.2 percent growth for first quarter 2011 vs. first quarter 2010; this is still way down from the industry’s biggest quarterly gain of 36.6 percent for first quarter 2010 vs. first quarter 2009. Apparently, car buyers are taking a much more cautious approach considering if they need that new car in the first place. Taking a closer look at the figures reveal that passenger cars is growing at 11.3 percent compared to commercial vehicles which rose a mere 6.7 percent.

The best-selling vehicles in the Philippines continue to be practical, fuel-efficient cars such as the Toyota Vios and Innova. However the likes of the Ford Fiesta are getting into the act, by being the country’s best-selling hatchback. And if that’s not enough, a slew of more fuel-efficient choices were launched in the first quarter of 2011. For instance, Chevrolet introduced their all-new Spark and a diesel version of the 2010-2011 Philippine Car of the Year, the Cruze; Honda revamped their Jazz; Hyundai’s gunning for glory with the all-new Accent and Elantra; Mitsubishi gave the Montero Sport a brand-new drivetrain and even Subaru, renowned for performance oriented vehicles, introduced a more efficient version of the Forester. Even luxury brands, typically immune to downsizing, are offering smaller engined choices such as those from Volvo with the S60 T4 and even PGA Cars with the Cayenne Diesel and Hybrid.

Tohoku Earthquake and Tsunami

The Tohoku (East Japan) earthquake and tsunami in March brought more than just death and destruction to the people of Eastern Japan. It almost brought the entire Japanese car industry into a grinding halt. With facilities damaged or supply lines cut, assembly of Japanese car makers were drastically affected: Toyota, Honda, Nissan, Mazda and even smaller players like Subaru faced stoppages. In fact, the only brands that still reported regular production were Mitsubishi and Suzuki.

Though carmakers in the Philippines were quick to dismiss the effect of the Tohoku earthquake and tsunami, analysts say otherwise. They say that the twin disasters in Japan will have a short to medium-term effect on car and parts supply as well as prices, especially if production doesn’t return to normal soon. Because of the global automotive supply chain, several car makers have already reduced or stopped production in several assembly plants altogether. In the US for instance, the supply of Japanese assembled cars such as Toyota Yaris could not be determined. And even if the vehicles are produced and assembled outside Japan such as in facilities found in Thailand, the Philippines or even North America, slowdowns may happen since key components are still sourced from Japan. This is already affecting global sales for the Japanese automakers which have already seen double digit drops. In fact, General Motors is poised to leapfrog Toyota once again as the world’s largest automaker if the situation doesn’t improve soon.

The Tohoku earthquake may also lead to higher car prices. First and foremost, this is because Japanese carmakers will have a diminished ability to offer incentives due to the cost of reconstruction in Japan. Second, if prices of components will rise (because of shortages) or if production costs increase (due to the diminished output of Japanese powerplants), these may be passed on to car buyers.

A Glimmer of hope

Thankfully, it seems that most, if not all the Japanese automotive plants are starting to ramp up production, perhaps negating the looming supply problem. And although there’s still the subject of record high fuel prices and the possibility of higher new car prices, this doesn’t seem to hamper the Filipino car buyer’s ability to get a new ride.

If there’s any indication to the Filipino’s continued interest in anything with four wheels is the record number of attendants at the 2011 Manila International Auto Show. Though more people may resort to financing rather than buying in cash, banks such as PSBank and BPI Family are offering more competitive rates and other incentives.

Nonetheless, it’s clear that fuel-efficient cars and commercial vehicles are getting most of the attention from now on. This is true even at regional auto shows such as the Bangkok International Motor Show, where Ford previewed their all-new Ranger and at Auto Shanghai, where small and green cars were outshining the more exotic cars. This proves that as long as car makers are privy to the market’s needs and wants, people will continuously support them. As long as they continue to offer enticing new products and incentives, 2011 will definitely be another banner year for the industry.