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June 8, 2020

PH Auto Sales Now Expected to Shrink 37 Percent in 2020

Last April, just a month into the implementation of the community quarantine in Luzon, Fitch Solutions published an analysis projecting that Philippine auto sales will remain flat (grow 0.4 percent) this year. This raised some eyebrows given the auto industry is now recognized as one of the worst hit by the crisis.

Now, another management consulting and research firm, Nomura Research Institute (NRI) paints a more dire, but admittedly, more realistic scenario where they predict, as a whole, Philippine auto sales will shrink by 37 percent in 2020.

Taking into account data available to them (the report was published on June 1), NRI cites the ballooning of banks’ non-performing loans (even before the lockdown), exacerbated by the slowdown of the Philippine economy in general, OFW remittances, and consumer confidence as the reasons for the huge drop.

NRI notes that auto loans now account for 7.1 percent in a bank’s portfolio of non-performing loans (NPL)—that’s an increase of 1.3 percent from 2012. This factor, NRI says, is already indicative of a potential slowdown in auto sales. Add to that a projected 13 percent drop in OFW remittances, a GDP expected to hit negative numbers (-0.2 percent), and almost no private sector spending (0.2 percent versus 5.9 percent in FY2018-2019), auto sales are expected to drop 37 percent from a growth of 5.8 percent in FY2018-2019.

The research firm says that auto sales will start to pick up by Q3 of this year, though commercial vehicles (CV) will remain weak throughout the year. NRI predicts that auto sales will grow in FY2021 by 5.4 percent compared to FY2020 figures.

NRI also sees more auto dealers to close unless they properly evaluate business continuity plans, particularly their operating and capital expenditure.

This analysis closely echoes the latest sales report published jointly by the Chamber of Automotive Manufacturers, Inc. or CAMPI and the Truck Manufacturers Association (TMA).

According to their latest sales report, CAMPI-TMA January to March 2020 year-to-date sales have already declined 24.4 percent. Compared to the same period in 2019, this is a 65.7 percent drop. March 2020 sales were particularly hard, freefalling by 63 percent.

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