Motorization: boon and bane

Category: Auto Financing Published: Wednesday, 24 December 2014 Written by Super User

Experience in Southeast Asia has shown that breaching an average income of $2,600 triggers rapid acceleration in demand for motor vehicles--a phenomenon termed as "motorization." This appears to be the threshold GDP per capita beyond which ownership of a motor vehicle becomes widely accessible to the populace, leading to a dramatic takeoff in motor-vehicle sales. Thailand and Indonesia achieved this in the past decade; we reached that threshold just over a year ago. It is thus now said that the Philippines is on the cusp of the third wave of motorization in Asean.

This year's auto industry data bear this out. The Chamber of Automotive Manufacturers of the Philippines Inc. and the Truck Manufacturers Association reported an all-time record high in monthly vehicle sales (22,278 units) last October--a 32.6-percent growth over last year's figure. The sales of private cars jumped the most, at 46.5 percent year-on-year, while those of commercial vehicles grew 24.7 percent. October year-to-date sales reached 192,005 units, topping last year's comparable figure by 29.6 percent, and promising to breach 250,000 units by the end of the year. By next year, the industry expects to sell 300,000 units, a long way from only 97,000 units sold in 2005. With an annual population growth rate estimated at 2 percent, these percentages suggest that the Philippines has indeed entered a new era of elevated motor-vehicle demand. The Asean Automotive Federation, in its sales report for the first seven months of 2014, noted the Philippines as the fastest-growing automobile and motorcycle market in the region, besting Vietnam, Singapore, Malaysia and Indonesia.

Along with higher income levels, easier auto financing deals have also contributed to the surging sales of motor vehicles, particularly private cars. Toyota Financial Services Philippines Corp. reports significant increases over the last three years in auto financing, particularly for the middle-class market (ie, those with monthly income of P20,000 to P100,000). The company reports that from a 28.9-percent share in 2011, this middle market accounted for 54.4 percent of its loans in 2012, and 63.5 percent in 2013. Toyota Motor Philippines president Michinobu Sugata sees this as indicative of the strong expansion of the Philippine middle class, and confirmation that the age of motorization in the country has indeed begun.

There remains a huge scope for growth in motor-vehicle ownership in the Philippines, considering that there are only an estimated 35 vehicles per 1,000 people (based on 2012 data from the International Organization of Motor Vehicle Manufacturers). In contrast, Japan has 599 vehicles per 1,000 people, Malaysia has 395, Thailand has 200, and Indonesia has 73. The United States, with one of the highest motorization rates worldwide, has more than 800 vehicles per 1,000 people. Motor vehicle ownership here would have to grow more than 10 times just to reach where Malaysia is today. And with today's trends, such growth is conceivable within the foreseeable future--a prospect that is both exciting and scary, depending on how one looks at it.

The exciting part of it has to do with how the auto industry can ride (pardon the pun) on this ongoing motorization trend in the country, to propel self-reinforcing growth in the manufacturing sector as a whole. There's good reason the Board of Investments and the Department of Trade and Industry have worked closely with the private sector to painstakingly craft an auto industry roadmap aimed at scaling up the domestic auto manufacturing industry.

A rapidly growing auto assembly industry will induce growth in basic industries like petrochemicals, textiles, chemicals, rubber and iron/steel; in parts and component manufacturers such as transmissions and wiring harnesses; and in other supporting industries like machinery and equipment, dies and molds, metal stamping, die casting, machining, and so on. No other consumer durable has backward industry linkages that are as extensive, making the industry a critical driver for broad-based inclusive growth. The multiplier effects are tremendous, not to mention the usual technology spillover effects on other industries. Our nascent motorization can very well trigger our economy's ascension to a higher sustained and inclusive growth path over the decades ahead, much as it did for Thailand (at least before its political troubles boiled over).

The scary part of it can easily be seen in how city traffic has been rendered nearly immobile, especially these days in the midst of the Christmas shopping season. Now imagine even just doubling our estimated 35:1,000 motorization ratio, let alone the tenfold increase it will take to approach where Malaysia is today. Yes, more and more Filipinos can now afford to buy cars and sustain a rapidly growing auto industry--but will we have the road and parking space to accommodate them?

Now that motorization is upon us, the urgency of putting in place extensive and efficient mass rail transit systems in our cities--to help keep private cars off city streets--has become even more glaring. Also worthy of support is a legislative initiative being championed by environmental lawyer Tony Oposa Jr. that will require all vehicle registrants to possess a garage or off-street parking space, among other requirements.

Time is running out on us, if we are to avoid turning our city streets into one humongous parking lot. Motorization is here, and it promises to be both boon and bane, unless we do the needed homework fast.

A very Merry Christmas to all!

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