Double-Digit Growth for PH Auto Industry Seen in 2021-Fitch
Automobile sales will experience double-digit growth in 2021 as demand for new vehicles that began in the second half of 2020 carries over into the new year. This is the assessment of Fitch Solutions Country Risk and Industry Solutions, an affiliate of Fitch Ratings Inc.
Data from the ASEAN Automotive Federation says total vehicle sales in the country declined by 42.7 percent during the first month of 2020 compared to the same period last year. That’s the second steepest drop in sales in Southeast Asia, next to Indonesia (50.5 percent).
However, Fitch says it is seeing signs of the automotive sales environment improving, albeit at a slow pace, as sales have risen every month since April 2020 on a month-on-month basis, with the exception of August 2020. Sales declined by 12.8 percent that month as a result of the temporary return to modified enhanced community quarantine (mECQ) in Luzon.
Vehicle sales outlook for 2021
Because of this outlook, Fitch says it has revised its forecast of vehicle sales for 2021. “We now expect sales to expand by 21.5 percent versus our previous forecast of a 10.2 percent increase,” Fitch said in a news release. “Indeed, our optimistic outlook for sales in 2021 will be driven by low base effects as we expect a 43.1 percent contraction in sales for 2020 as Typhoon Vamco (Ulysses) dampens November 2020 sales on a month-on-month basis.”
In particular, Fitch says it expects pasenger vehicle sales to increase by 18 percent while commercial vehicle sales will grow by 23 percent.
“Over the longer term we remain optimistic on Philippines vehicle sales in terms of growth, however we expect sales volumes to remain below pre-pandemic levels until 2024,” Fitch said.
Fitch attributes the expected growth in commercial vehicle sales to the government’s “strong focus” on infrastructure in the 2021 budget.
“The heavy trucks and light commercial vehicle sub-segments of total CVs will perform better as these vehicles are most suitable for construction-related activities,” Fitch said. “Furthermore, our Infrastructure team believes that the Philippines will continue to be one of the fastest-growing construction and infrastructure markets in South East Asia, as strong support for the industry coming from the government's ambitious ‘Build, Build, Build’ infrastructure plan leads to an uptick in construction activity.”
Fitch added that it expects construction industry real value to grow by 9.2 percent in 2021 from a decline of 7.8 percent this year.
“This will result in construction activity driving demand for (commercial vehicles) going forward. The CV segment will therefore lead the growth of total vehicle sales in 2021 and within our 2021-2029 forecast period.”
Outlook on jeepney modernization program
Fitch also provided an outlook on the country’s efforts to modernize the public transport system, specifically jeepneys through the Public Utility Vehicle Modernization Program (PUMVP) program. While the view was moderately optimistic before the onset of the pandemic, Fitch says it has scaled back its outlook due to the fact that transport operators have been unable to operate for months.
“The loss of revenues by operators will negatively impact their ability to finance the purchase of new lower emission and Euro 4 compliant vehicles even as the subsidy offered was raised to P160,000, from P70,000 previously, “Fitch said. “According to the Department of Transport, many operators are joining and creating cooperatives to pool together resources (one of the key objectives of the PUMVP) for easily accessible financing of new vehicles. However, with the deadline of December 31, 2020 for non-compliant vehicles to be permanently removed from the roads soon approaching, operators that experienced hardships during movement restrictions will not be able to afford to renew their fleets in time.
“Thus, we expect the PUMVP-led CV growth to be muted in 2021 with growth in construction activity being the key driver of growth of the (commercial vehicle) segment.”