First of three parts
WHEN the COVID-19 outbreak started to close borders, economic forecasters like Fitch Solutions predicted the Philippines car industry to either contract by 1 percent or grow just about 0.4 percent climb. That is much, much lower than the original estimation of 7.4 percent growth overall.
The industry already went down about 12 percent at the start of the year because of the Taal Volcano eruption. That was a compounded problem, as sales during the start of the year are usually slow, owing to the cash outflow during Christmas, and superstitions that bind consumers not to spend at the beginning of the year.
The effect of Taal’s moodiness is not area-based, as buyers become cautious during any cataclysm and begin to build confidence back when the disaster is over.
In the case of the coronavirus attack, the automotive industry was just reeling in from the lost sales of the first two months of the year (February was picking up about 4 percent already) when the lockdown shunted any vehicle transaction, near completion, or in process.
The effect of the coronavirus plague is debilitating to an industry that is dependent of showroom traffic. People coming into dealerships to see the cars, touch them, sit in them. Sales people proactively pushing inquiries to close the sale with a test drive and a good bank offer has become impossible in the last 10 weeks.
Since the pandemic caused the temporary closure of non-essential establishments, including car dealerships, there is no showroom traffic to drive sales. Ten weeks have passed and the with the implementation of the general community quarantine, and some dealerships are opening up in selected areas.
Malaya Business Insight asked automotive experts in the luxury car segment, dealer retail business, corporate strategy and finance their opinions on how the industry will rebound from the prolonged effect of the pandemic.
According to Gabriel “Gabby” Peren, now an independent automotive professional, the industry is now “fighting fires.” Peren, a marketing and corporate strategist with decades of experience in the industry from General Motors, to Honda, to Volkswagen and BYD said that like many businesses globally, one quarter of the year practically froze.
“We can only guess when commerce will flow. But this is how I imagine the industry will crank up,” Peren said.
“First, vehicle sales will require a review of inventory including in-transit, in case of CBU vehicles. This may be done in a short while. Some distributors may request to stop import supply. Second, dealers and distributors will start pencil-pushing to come up with their most likely short, medium and long term estimates and commitments. They should keep the focus on their break-even points for survival,” Peren narrates while emphasizing how actual sales and sales forecasts have not only been disrupted but discarded.
“At present, I can imagine sales persons promptly calling on their reservation lists. Malalaman kung ano talaga ang early signals. Wala pa kasing new walk-ins,” Peren comments.
He also pointed to the fact that to pump-prime selling, both dealers and distributors are expected to initiate promo packages-truly attractive, innovative sales packages, the costs of which are shared by dealers, distributors, insurance, and financing institutions. He also expects a big surge in parts and service—the nearly two months of vehicles just being parked in garage brings with it a host of problems.
“Hindi yata pwedeng walang promo, until maubos ang current stock,” Peren insists.
He reiterates that all immediate actions will be “first aid in nature or patay sunog muna. Rational management lang wala munang emotion.”
COMING BACK STRONGER
Dealerships are taking the brunt of the pandemic.
Since they are the contact point for the brand and also the exit point for sales. The exchange of goods happens at the dealer’s showroom floor. Malaya Business Insight asked Vince Licup, director and owner of a multi-brand dealer network how he believes dealers will cope up.
“Online is really the way, everything will be digital. We will have to be visible on all major online platforms, Autodeal, FaceBook, even YouTube. Demos & credit applications will be done via net, this is where most dealers are going to,” Licup explained pointing out how dealers are very confident that sales will bounce back after ECQ.
“We lost 3 months. So at least taking off 30% from annual target will not be a surprise. But on maintaining month to month target, I believe we are all positive. In other countries, we saw a rise in sales as people shifted away from public transportation. Maybe a change in customer preference will happen. They would be more practical. I see that P1.3M below crossovers, & pick ups would be very saleable. Logitics business & shuttle services will also help drive light trucks & vans sales. Banks and non-bank financing institutions will play a major role—if banks continue supporting retail financing to customers, as they did before, the automotive industry will come back stronger!” Licup explained.
The young executive, whose innovative, millennial mind is convinced that digital is the way to go, has a dealership network that covers 5 brands, including Chinese brands Chery and Foton. He operates several showrooms located to the North of Manila predicts that due to the effects of social distancing and the need for physical barriers, the selling field will also change drastically.
“Maybe in the future, we will be looking at sales boutiques instead of the huge showroom that customers need to visit. More compact showrooms located below office buildings or even condominiums. The idea is bringing brands directly to the customers,” Licup concluded.
NOT POSSIBLE TO RETURN TO THE OLD WAYS
Steven Hu, President of the Yulon Finance Philippines Inc., an independent financing company that has introduced innovative financing solutions for both the car buyer and dealer believes it is not possible to return to the old ways.
“COVID-19 already changed everything. I think it’s not possible to return old ways. We need to adopt new normal. If we take what Taiwan experienced in 2003 when SARS attacked as an example, we see how people purchased private cars to avoid crowds of people inside public transportation,” Hu said.
He estimates that it is possible in the second to third quarter of the year, the automotive market might have chance to recover sales lost from March 16 to the present. The long term sales impact, will be dependent on the stability of the economy.
“GDP might decline to from 6% to 0% this year, the total auto industry demand might decrease 10%~20% compare to past 3 years average,” the former Nissan Motor Philippines Inc Vice President for Marketing and Sales added.
Hu is however upbeat that the industry can recover.
“I do believe the big crisis also create big opportunity. The market still has a chance of recovery in the 3rd and 4th quarters. It may not be a total recovery, but the effect will be halting the market from further shrinking. When people get used to “new normal” and when vaccine available in the market next year, the market might jump up again.
LUXURY CARS A BAROMETER
The luxury car market is seen as a barometer of recovery.
Though small it is usually stable. Demand from the luxury car segment is fairly resilient and inelastic because the discretionary purchasing capacity of buyers—though impacted during crises—it may not be materially impaired.
Automotive expert Vince Socco, previously of Toyota Motor Philippines Inc. before moving on to captain the regional headquarters in Singapore and then retiring back in the Philippines to join GT Capital, agrees.
“I believe that the luxury segment is a good bellwether of how the rest of the auto market segments will recover. The more significant reason for a delay in purchases of luxury items will be how quickly – or not – certainty is seen to return to the economy and business.
Socco also said that “mobility and transportation will continue be an essential driver of economic activity and growth. The ECQ has, in fact, underscored the centrality of mobility in assuring that essential parts of the economy keep running.”
“Demand for vehicles and mobility will return – it’s a matter of when, not if. In this regard, we will need to follow the lead of our customers in their journey to restoring their consumer confidence and their economic well-being. Demand will return and we remain cautiously optimistic that it will be sooner than later,” Socco pointed out.
When asked what dealers should do he said that the real task is to make sure that customers have the peace of mind coming out of ECQ.
“To reassure them that our dealers are open to meet their mobility needs, as and when and where needed. Especially for the servicing of their vehicles, we aim to make sure that we keep their cars on the road given what may be a reduction in public transport capacity due to distancing needs,” Socco stressed.
He also emphasized how car dealers must take every measure to create a safe home for customers in line with social distancing and all other health and hygiene protocols.
“This is our primary concern. Assuring their safety is a very important first step to helping restore consumer confidence,” he added while explaining how customer behavior is also expected to change.
“But there is no playbook to work from, in this instance. So we need to increase our attentiveness and consideration of evolving social and customer preferences. We will be ready to help build a new purchasing and ownership experience based on what our customers tell us,” the former Toyota executive reiterates.
Socco concludes the interview by saying that “the auto business will change. There are a lot of learnings from the ECQ about how to improve productivity and efficiency while on quarantine. We need to leverage this learning and reflection to enhance our responsiveness to our customer needs.”
Next week, in part two of this report, Malaya Business Insight gets insights from commercial vehicles, heavy trucks, transport network services, automotive parts and maintenance sectors.