Fitch unit sees modest sales recovery for cars in 2019

MANILA, Philippines — The Philippines may see a mild recovery in the passenger car market with sales projected to grow by 3.2 percent to reach 120,000 units next year,  a unit of Fitch Ratings said.

While mild recovery is seen for next year, the country’s passenger car market is projected to grow faster in the coming years, with sales to reach 205,000 units by 2027.

In its industry trend analysis, titled “Unfavorable Macroeconomic Conditions to Weigh on Philippines’ Car Sales,” released yesterday, Fitch Solutions Macro Research said it sees a mild recovery for the country’s passenger car market next year.

“While we expect households and businesses will have adjusted to the higher vehicle excise taxes imposed under the Tax Reform for Acceleration and Inclusion (TRAIN) Law in 2019, we believe that unfavorable economic conditions in the form of high interest rates, elevated inflation and a still weak peso will see car sales remain under pressure,” it said.

Higher excise taxes were imposed on automobiles under the TRAIN Law which took effect in January this year.

Even as the country’s headline inflation rate, or the rate of increase in prices, slowed to six percent in November from 6.7 percent the previous month, and brought the average at 5.2 percent for the 11-month period, Fitch’s Country Risk team, which expects cooking oil and food prices to help rein in price growth over the coming months, still forecast inflation to average 5.2 percent next year.

Fitch’s Country Risk team likewise expects the Philippine peso to remain weak, but at a more gradual pace, to average 55.57 per dollar next year.

As bulk or 60 percent of new cars sold in the Philippines are imported, a weak peso will put upside pressure on the cost of these vehicles.

In addition, the Fitch unit expects the Bangko Sentral ng Pilipinas (BSP) to continue with its rate hiking cycle next year, alongside the US Fed, and such would put upside pressure on pricing for auto loans.

The Fitch Country Risk team anticipates the BSP to hike its policy rate by 50 basis points, which will take the policy rate to 5.25 percent by the end of next year.

As a result, the cost of borrowing in the country will rise, and this would weigh on the consumer’s ability to take on financing to buy a new car.