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It’s no Oprah show, but 2020 is the year of free cars

It’s no Oprah show, but 2020 is the year of free cars

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By Roy Stephen C. Canivel

The au­to­mo­tive in­dus­try saw a pop­u­lar brand re­sort to a “buy one, take one” promo only twice in the last five decades—once in the 1990s, and then re­cently, when the pan­demic struck.

Es­cor­ton “Gor­don” Teng, 73, re­called that in the 1990s, Mazda, then dis­trib­uted by Columbian Au­to­car Corp., of­fered a sports car for free if a cus­tomer bought its mul­ti­pur­pose ve­hi­cle Mazda MPV. Teng, who cur­rently owns sev­eral deal­er­ships in Metro Manila, has been in the in­dus­try since he left col­lege in 1971.

The promo was of­fered again ear­lier this year. A Hyundai pas­sen­ger car that used to cost nearly P800,000 was of­fered for free—if you bought a sports util­ity ve­hi­cle (SUV).

Teng, chair of Wheels Inc., was one of the deal­ers who of­fered the sweet deal. In about two months, their in­ven­tory— al­most 4,000 Hyundai units— was sold out.

But this says less about the state of the car deal­ers and more about the dis­trib­u­tors, if not the en­tire in­dus­try.

Car com­pa­nies would only do ex­treme pro­mos when con­sumer and busi­ness con­fi­dence are low, such as dur­ing cri­sis pe­ri­ods, ac­cord­ing to Trade Un­dersec­re­tary Fita Ald­aba.

“[It’s the] same thing now with the health and eco­nomic cri­sis. Peo­ple don’t want to spend on nonessen­tials. Hence, [com­pa­nies had to re­sort to] in­ten­sive mar­ket­ing and ag­gres­sive pro­mo­tion to stim­u­late de­mand,” she said in a Viber mes­sage.

“[It’s] bet­ter to sell at very low prices rather than in­cur­ring in­ven­tory costs and risk not be­ing able to sell cur­rent stocks, es­pe­cially when new mod­els come in,” she said.

Heads and tails

“I al­ways say that deal­ers are the tail and the dis­trib­u­tors are the heads. So the tail fol­lows the head,” Teng said in a Zoom in­ter­view with the In­quirer in Novem­ber.

While pro­mos have al­ways been a part of the busi­ness, car com­pa­nies rarely go this far to get back cus­tomers. “It only tells you that they need to get rid of those units,” Teng said. Per­haps, it’s des­per­a­tion? It has been a ter­ri­ble year, said Kia Philip­pines pres­i­dent Manny Ali­gada in a phone in­ter­view.

“All the play­ers had al­ready planned for an ag­gres­sive 2020, bet­ter than 2019. Un­for­tu­nately, we al­ready have the in­ven­tory for al­most the year. So peo­ple were stock­ing up, and then it hap­pened sud­denly,” Ali­gada said.

It be­gan with the vol­canic erup­tion. Man­u­fac­tur­ers saw wind­shield-dam­ag­ing ash cover the tops of brand-new cars parked in their plant as­sem­blies in South Lu­zon.

Then, of course, the pan­demic hap­pened.

For an in­dus­try that ad­vances or­ders, the ve­hi­cles were left idle for months. Up­keep was ex­pen­sive and fewer peo­ple were buy­ing.

When the Taal Vol­cano erupted in Jan­uary, sales dropped 11.8 per­cent ver­sus the same month last year to 23,723 units, of­fi­cial data of car and truck man­u­fac­tur­ers showed. This is based on data from the Cham­ber of Au­to­mo­tive Man­u­fac­tur­ers of the Philip­pines, Inc. (Campi) and Truck Man­u­fac­tur­ers As­so­ci­a­tion (TMA), whose mem­bers in­clude mar­ket lead­ers Toy­ota and Mit­subishi.

Then at the peak of the lock­down in Lu­zon in April, Campi and TMA—which ac­count for about 88 per­cent of the auto in­dus­try in the coun­try in terms of sales—sold only 133 units.

‘Lose less’

“It was not a slow drop. It was a ditch. Sud­denly, it was a full lock­down,” Ali­gada said. Kia, which Ali­gada heads, is also part of Campi.

It was not just about the in­ven­tory that the in­dus­try was stuck with. It was also about the costs it took to main­tain the un­sold units, like clean­ing them and pay­ing for the space.

And so, Ali­gada said, the in­dus­try pro­vided huge pro­mos. Kia, for one, of­fered pro­mos across its line-up, mark­ing its most ag­gres­sive since the brand started be­ing dis­trib­uted un­der the Ayala Group in 2019.

Kia’s en­try-level model Pi­canto has a sug­gested re­tail price of P590,000. Th­ese days, the unit is be­ing of­fered for a down pay­ment of just P1,000,

None, how­ever, were ar­guably more ag­gres­sive than Hyundai. No one gave a dis­count to deal­ers as big as Hyundai that Teng prac­ti­cally of­fered SUVs and pas­sen­ger cars to his cus­tomers for free.

“If they [deal­ers] get it out now, they will lose less. If they do it later, they’re gonna lose more. They know that, so some of them just bite the bul­let and try to dis­pose the units as early as they can,” said Teng, who also sells other car brands.

Hyundai Asia Re­sources Inc., the of­fi­cial dis­trib­u­tor for the Korean brand in the coun­try, has not yet re­sponded to a re­quest for com­ment as of press time.

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Lat­est avail­able data showed Campi and TMA sold a to­tal of 173,035 units at end-Oc­to­ber, a 42.7-per­cent drop from the 301,761 units sold dur­ing the 10-month pe­riod in 2019.

Rom­mel Gu­tier­rez, Toy­ota first vice pres­i­dent and Campi pres­i­dent, has not yet re­sponded to re­quests for in­ter­view as of press time. But in a pre­vi­ous state­ment, he said the in­dus­try was on track to reach 240,000 units by year-end.

Yet, the en­tire in­dus­try sold more than 416,000 units last year, 370,000 of that sold by Campi and TMA alone.

Re­cov­er­ing

But in this case, Ali­gada said it might not be nec­es­sar­ily right to com­pare 2019 and 2020.

The Philip­pines didn’t have a vol­canic erup­tion and a pan­demic last year. If one looked past that, there were other— more en­cour­ag­ing—signs hint­ing at a re­cov­ery, he said.

He said sales have been im­prov­ing month-on-month. Campi and TMA con­firmed this, show­ing that ex­cept for Au­gust, the in­dus­try continuously saw growth be­gin­ning May.

Ali­gada thinks it will get bet­ter next year.

Fi­nanc­ing, which he said was usu­ally re­spon­si­ble for up to 70 per­cent of re­tail sales in the in­dus­try, would nor­mal­ize once the Bayani­han laws ease the reg­u­la­tions on the fi­nanc­ing sys­tem.

More­over, with more peo­ple go­ing back to work, car loans are now get­ting pro­cessed faster. At the height of the lock­down, it took a month to process loan ap­pli­ca­tions, whereas it only used to take a few days or a week at most.

Mar­ket­ing ef­forts like pro­mos would con­tinue next year, but not as ag­gres­sive or al­lur­ing as 2020, said Ali­gada, who stressed this was the best year to buy a new car.

“There will al­ways be ag­gres­sive mar­ket­ing ef­forts. That will con­tinue, but I think the mag­ni­tude of the free­bies will not be as much as this year,” he said.

“The rea­son for that is because with what’s hap­pen­ing lately, the econ­omy could bounce back very soon,” Ali­gada said.