Auto analysts and a bank executive have expressed misgivings on the new tax set to be imposed on imported vehicles, predicting that such a move would further derail efforts of the auto industry to recover from the sales slump brought about by the Covid-19 pandemic.
Insiders fear that the imposition of the tax measures would up the prices of vehicles further, resulting in buyers deferring their purchases, while banks—already spooked by the economic contraction of 2020—may now find it even more difficult to offer affordable financing schemes.
However, not everyone in the industry sees doom and gloom coming with what has been called the “safeguard measure” (primarily because these taxes were meant to protect workers in local car assembly and manufacturing from a surge in imports). Filipino auto parts makers have welcomed this Department of Trade and Industry-led initiative to impose “safeguard measures on importation of completely built units (CBUs) of passenger cars and commercial vehicles”.
To be specific, DTI said this Monday that it was imposing a provisional safeguard duty on imported vehicles, in the form of a cash bond amounting to P70,000 per imported passenger car and P110,000 per imported light commercial vehicle (LCV). A Jan. 5 Inquirer report stated that the new taxes were a “well-intentioned measure that might be overshadowed by its bad timing as it adds another burden on an already struggling industry”.
Jojo Victor, head for auto loans of Security Bank, said: “This new regulation will further increase the prices of motor vehicles in the country. This will impact the demand for vehicles, and auto loans will directly be affected as buyers may opt to further defer their purchases until the pandemic situation improves. Banks will not be in a position right now to offer affordable financing schemes as we are still reeling from the effects of the pandemic and the Bayanihan Act mandated by the BSP. Efforts to stimulate the auto industry and auto financing will be derailed with this development.”
Ma. Fe Perez-Agudo, president of the Association of Vehicle Importers and Distributors (Avid) with 21 automotive member firms representing 26 brands, told Inquirer Motoring that “the move to impose provisional safeguard measures on imported vehicles is like pulling the rug from under the auto sector that is still struggling to get back on its feet with a 40-percent drop in sales in 2020. This further dampens the recovery outlook of the industry at a time when all players and stakeholders are appealing for government support. The measure will aggravate the already anemic demand and make it harder for Filipinos to afford personal mobility with the projected price hikes”.
Agudo added: “Avid has always aimed for the long-term development of the automotive sector, including the advancement of manufacturing as an inclusive means for growth. We have clearly and consistently expressed our position that penalizing imports will not trigger investments or create more jobs, much less address issues on the regional competitiveness of our local manufacturing sector. Alternatively, we call for long-term policies that will further improve the ease of doing business which would open opportunities for investments, create jobs for our workers, and provide the Filipino reliable and affordable means of transport”.
Lawyer Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines Inc (Campi) with 18 members and 24 auto brands, told Inquirer Motoring:
“As if the adverse impact of the pandemic is not enough, the decision to impose provisional safeguard measures against imported vehicles is yet another blow to the automotive industry. This will further derail the recovery efforts of industry players and stakeholders. While Campi supports the development of local vehicle manufacturing, it has consistently opposed the imposition of safeguard duty against imported CBUs. We project a further reduction in sales volume, which in turn poses the risk of employment downsizing, not to mention government revenue loss. This will also encourage revival of the gray market/used vehicles. With much uncertainty, investments in dealer expansion and parts localization may be deferred.”
Gutierrez added: “The risk in the short term will be the disruption in regional production and supply. In the medium to long term, this will further slow regional economic growth because of the chain reaction to other industrial sector. Furthermore, this could potentially weaken trade and economic relations triggered by retaliation by concerned exporting countries to the Philippines”.
Willy Tee Ten, president of the Philippine Automotive Dealers Association (Pada) which represents 200 auto dealers nationwide, told Inquirer Motoring: “I would like to thank Secretary Mon Lopez for all his efforts (in reducing the tariff from the original proposal) and support to our industry. The additional tariff for imported vehicles will definitely hit the entire automotive industry, but we are also here to support our government as we bounce back from this pandemic. If DTI can even lower the tariff, that would be fantastic, since they mentioned it was temporary, shortening it (if they will not extend it) would be ‘heavenly’”.
Parts makers down to 49
On the other hand, Ferdinand Raquelsantos, president of the Philippine (Auto) Parts Maker Association, said that his group welcomes the safeguard measures.
“Back in 1997, total vehicle sales (of CBUs) represented only 20 percent, while the rest were all locally assembled completely knocked-down (CKD) vehicles. For 2019, CBU sales were estimated to represent 88 percent of the market share, while CKD sales went down to 12 percent. With this big turnaround, local manufacturing for auto parts was drastically reduced. Company membership in our association has gone down from 128 firms in 2015 to just 49 by the end of 2020. Moreover, some of these remaining companies have been on a ‘No Commercial Operations status’ due to no production requirements by our clients”.
“Our vehicle manufacturing industry has been swallowed up by all these free trade agreements, to the detriment of our workers. We understand that it is cheaper to import CBUs than locally assemble them. But how can we develop our supply base if we discourage local vehicle assembly? If not for the Comprehensive Automotive Resurgence Strategy (CARS) program with the Toyota Vios and Mitsubishi Mirage, we probably wouldn’t have any more passenger car assemblies, like what happened to Honda City, Honda BRV, (and the Isuzu D-Max).”
Raquelsantos added: “We need to sustain our local manufacturing and recreate jobs for our workers, whether in the vehicle assembly plant or in the parts maker side”.