Car dealerships begin rationalizing operations amid soft demand as they adjust to the new normal.
Extreme measures have been taken by the Yuchengco Group of Companies which through its holding company House of Investments (HI) is shutting down five of its dealerships.
Even before the new coronavirus disease 2019 struck, the automotive market has been challenged by stiff competition from so many brands and the increase in the excise taxes.
But automotive executives are hopeful of recovery, regarding the pandemic as yet another crisis the industry can surmount.
“There’ll be lots of adjustments with the new normal. Rationalizing operations is just one of them (and) which may take in many forms,” said Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines Inc. and who earlier projected at least a 20 percent fall in sales this year.
Vince Socco, chairman of GT Capital Auto Dealerships Holdings, said the fundamentals of the automotive market are strong but that like most businesses, there will be a need for auto dealerships to rebuild their operations.
“The priority is to restore its financial viability after over two months of no revenues. We have to remember that dealers vary in their business circumstances,” Socco said in an interview
According to Socco, rationalization of operations is a continuing endeavor of every car company and dealership.
“Given the expected contraction of vehicle demand, auto companies and dealers will need to right-size operations,” Socco said.
He said dealerships will consider headcount first and foremost. Right-sizing facilities may also be studied.
Socco said dealerships will have to step innovation to increase productivity and efficiency.
With customer behavior and attitudes changing too, Socco said dealers will need to incorporate health protocols in the sales and ownership experience it offers.
“The value of a dealership is measured by its ability to meet the mobility demands of the customers in the territory it has been asked to cover. Ultimately, it is the customers that determine that value,” Socco said.
Socco said while the Philippine automotive industry and the economy on the whole were able to bounce back from crises of the past –oil crisis of early 80s; the Asian financial crisis of late 90s; the Lehman crisis in 2008; and the Great Japan Earthquake and Thai floods in 2011 – this is the first time that a crisis has led to not just disruption but total cessation of business.
“After the Asian financial crisis, the market contracted by almost 50 percent and remained at that level for almost 10 years, but the auto sector survived. I am hopeful that the industry will be able to come out of this crisis relatively intact,” Socco said.
Socco noted the role of the economic and social nets being rolled out by government to support all sectors of the country.
“The key to arresting any further dislocations is for government to provide demand stimulus
programs. Ultimately, increasing demand will be teh much needed lifeline for the auto industry” he said.
Socco said auto companies also responded in its own way to help government assure stability among its ranks.
However, costs continued to pile up while revenues dried up.
“Cash is very tight and financial relief is needed for such items as interest costs, leases and other fixed costs of the business,” Socco said.
HI in a disclosure to the stock exchange on June 1 announced it was streamlining its automotive distribution by shutting down its showrooms for Isuzu in Greenhills and for Honda in Fairview, Kalookan, Marcos Highway and Marikina.
Honda Cars Philippines Inc. (HCPI) in a statement said the four Honda showrooms will cease operations June 30.
HCPI said its dealership network currently stands at 34 nationwide, including two upcoming dealerships which are scheduled to be operational soon.
HCPI said existing dealerships in Metro Manila as well as nearby provinces will be able to sufficiently service customers that may be impacted by the closure of these dealerships and continue to provide both sales and after-sales service for customers in these areas.