Just as 2020 was about to end last year, the Department of Trade and Industry issued Department Administrative Order Number 20-11 which imposed a Safeguard Duty on specific car imports. This was in response to the petition of the Philippine Metalworkers Alliance which claimed that the increase in car imports from 2014 to 2019 caused “serious injury to the domestic industry.” The DTI established that it found a “causal link” between importation and domestic manufacturing job loss, and hence stepped in to protect local manufacturing.
So when the order took full effect on Feb. 1 this year, some car brands immediately announced the collection of a security deposit from customers who bought imported models covered by the Safeguard Duty. Toyota, for example, had 11 models which were covered by the P70,000 add on rate, and 3 light commercial vehicle models with the P120,000 duty. It even announced that it would collect Value Added Tax on top for the security deposit.
Like other brands that started collecting this duty from its customers, Toyota promised the amount will be held in trust for the customer and returned if the Tariff Commission, which was given 120 days to review the need for the Safeguard Duty, decides to make the DAO permanent or not.
Many brands took the security deposit add-on and looming price adjustments as an opportunity to move their current inventory at that time. Other brands even advertised that they would absorb the cost of the Safeguard Duty as a form of goodwill to its customers. Masking the fact that they were selling units already in their inventory, imported before February 2021 when the Bureau of Customs started collecting the Safeguard Duty. And then there were some who actually used their marketing and subsidy budgets to cover for the Safeguard Duty and prevent the negative optics of a price adjustment affecting their brands.
“There was a slight temporary sales increase on the Strada, Montero Sport and Xpander in the next coming months due mainly to the Safeguard Duty scare,” shares Don Comia, branch head of Mitsubishi Manila Bay. He adds, “Later on, car buyers developed a wait and see attitude as they decided to defer their purchases since they knew that within 200 days the Tariff Commission would come out with a decision or recommendation on the issue.” And this seemed to be true in many other dealerships as well.
Another dealer sales manager claims that models that have low-down payment promotions were severely affected by the security deposit requirement. For buyers of such vehicles, the 70,000 or 120,000 add-on was a deal-breaker. This led to loss of sales that further affected the sustainability of some dealerships which were already struggling from lower sales volumes because of the ongoing pandemic. Lower sales volumes mean lower income for the dealership. Lower income affects its ability to pay for building rent, utilities, salaries, loans, and other operational expenses. And that is why we have been seeing some dealerships close shop these past few months.
In its final report released on the 22nd of July, the Tariff Commission eventually concluded that there were no increased imports of either completely built up passenger cars or light commercial vehicles from 2014 to 2019 that would severely injure the local car manufacturing industry. Thus it terminated its investigation of the case brought up by the PMA and forwarded by the DTI. The Tariff Commission likewise recommended against the imposition of safeguard measures on car imports identified in its investigation.
So how did the DTI get it so wrong? Why would an agency tasked to protect consumers become part of their burden with the imposition of the Safeguard Duty? As a business, it would be common sense to pass additional costs to consumers as part of its operations. And since it was a lump sum payment for these customers, it was money they were never sure of getting back. Money they could have used to address other necessities over the last six months. In the end, it was the car buyer who got the short end of the stick. Again.
This further brings us to the most relevant question with regard to the issue – how will car buyers get their money back?
For brands that added security deposits on top of the selling prices of affected models, their customers need only to present a valid government-issued ID and the acknowledgement receipt issued to them to make the claim. But in practice, customers claiming for a refund of the security deposit may not find it that easy.
The head of sales of a dealership representing a popular Japanese car brand claims that they will need to claim a refund from the distributor first before the dealership can start refunding customers. From then, he says, another 7 working days is needed to process refund claims at the dealership which may be done either via check or a bank deposit.
Dealerships which already advanced the security deposits to the manufacturer when they ordered wholesale will have to wait for a refund as well. “Upon receiving confirmation from our manufacturer that we should already process the refund to our customers, we will immediately do so and inform our customers,’ reveals Comia. “Hopefully our customers who deferred their purchase due to the Safeguard Duty implementation will already decide to buy now.”
The closure of Ford’s manufacturing operations in the Philippines nine years ago, the stoppage of Isuzu Philippines’ D-Max manufacturing line last year, the shutting down of Honda Cars Philippines’ manufacturing plant in 2020 and the old Nissan Motor Philippines plant in Sta. Rosa just this March, was no coincidence. In a global environment where it has become cheaper to make cars in other countries than to build them here, we will continue to see a rationalization of business operations in the near future. However, policy changes shot from the hip do not help the country’s bid to become a manufacturing hub at all.
According to the Tariff Commission’s report, the local car manufacturing industry identified three past events that adversely affected it: the adoption of the Euro 4 emission standards which began in 2016 and was fully implemented beginning 2018; the implementation of the TRAIN Law in January 2018; and the emergence of the COVID-19 pandemic in early 2020.
What were the chances that this Safeguard Duty would have been the final nail in the coffin?
Motoring and motorsports are two of Mikko’s greatest passions. Combining more than twenty years of professional automotive photography and videography experience with years of touring car racing competition, and a deep understanding of the car industry, from both the manufacturers’ and consumers’ points of view, have given him a unique and insightful perspective in the motoring beat.