BMI View : As Philippines GDP continues to grow steadily on the back of an investment boom, we remain bullish on 2013 vehicle sales and expect the CV segment to outperform the passenger car segment. On the other hand, we are bearish on 2013 domestic production due to the lack of an attractive auto policy put in place by the government to lure investments from foreign automakers, into the local sector.
According to the Chamber of Automotive Manufacturers of the Philippines (CAMPI), vehicle sales for November were 14,620 units, a 21% year-on-year (y-o-y) increase from 12,090 units in November 2011. Sales for the first 11 months of the year also improved 8% y-o-y to 141,283 units, from 130,812 units in the same period last year.
We see our view on 2012 sales playing out well, given that we are forecasting full-year sales to come in at 154,000 units a 9% increase y-o-y.
Our 2013 Sales Forecasts
We are bullish on Philippines vehicle sales and are forecasting growth of 10.1% in 2013.
CV Segment To Outperform Passenger Car Segment
Due to the backdrop of strong investment activity in the Philippines, BMI is forecasting 2013 sales in the commercial vehicle (CV) segment to outperform the passenger car segment. Our country risk team is forecasting Philippines GDP to grow by 5% in 2013, but gross capital formation to grow at a much faster rate of 8.2%. Strong infrastructure spending is likely to buoy CV demand and we forecast 2013 CV sales to grow by 11%, to hit 116,000 units.
Passenger Car Segment To Also Enjoy Strong Growth
As the Philippines economy powers ahead, our country risk team forecasts private consumption to grow by 4.8% in 2013. A strong consumer story has encouraged automakers to import vehicles through dealerships, into the country. While local production flounders, vehicle sales are growing at a healthy pace.
Furthermore, the lack of credit penetration in the economy bolsters our view that passenger car sales are set to increase. While credit has been steadily rising since 2008, it is still at a relatively low percentage vis-a-vis the broader economy. Total outstanding credit in September 2012 was PHP3.26tn (US$79.6bn), which is roughly only about 30% of Philippines's GDP. We believe credit has the potential to expand much further and this would help consumers in taking up loans to purchase new cars. We forecast the passenger car segment to enjoy growth of 8.2% in 2013, to hit 54,000 units.
|Still Room To Expand|
|Philippines- Total Credit, PHP Mns|
Bearish On Local Production
That being said, we are bearish on local production in Philippines and see very weak growth for
2013. We forecast 2013 vehicle production to grow by a mere 2.2%, to hit 62,000 units. Furthermore, BMI is forecasting average annual growth of 2.3% over the 2013-2016 period for domestic vehicle production.
|Still A Bearish Story|
|Philippines- Domestic Vehicle Production, Units|
We have long highlighted our concern on the persistent delays in implementing the final version of the Philippines Motor Vehicle Development Programme (MVDP). Without attractive incentives from the government, automakers are finding it increasingly unattractive to produce domestically due to high production costs as well as a relatively small market vis-a-vis other regional peers. Ford Motor's latest move to halt production and exports has been the latest blow to the industry ( see our online service, November 26, 'Ford Ceasing Production Due To Poor Incentives').
We see this dichotomy between bullish vehicle sales and bearish vehicle production continuing into 2013 unless the Philippines government takes a strong step in coming up with an attractive auto plan for global automakers, which would then prompt us to review our forecasts.