When time stood still

Time stood still for much of the nation two years ago. In an enterprise survey conducted by the Asian Development Bank almost immediately after the enhanced community quarantines (ECQ), it reported that two-thirds of the surveyed firms temporarily closed, and the remaining reduced operations. Majority of those that remained open reduced almost by half their work force.

The flash survey, which collated responses from about 2,500 enterprises from micro to large, ended on May 15, 2020 or one month after the ECQ was imposed. The survey provided some basis for the Philippine government to craft policies that would extend assistance to mitigate business disruption.

How such interventions, most of them directed towards micro, small and medium businesses or MSMEs, had fared should in time be subject to a more extensive study, not just to gauge how effective they were, but also to provide the basis for future programs in times of crisis.

A bias on understanding and helping MSMEs is understandable given its overwhelming numbers among Philippine businesses and the millions of people relying on these companies for jobs. MSMEs cried out loud for short-term credit lines, tax payment deferment or reduction, and support for delayed payments of utility bills and rentals, if applicable.

Surviving the pandemic

Large firms or conglomerates were less expressive. Planning teams quickly and quietly buckled down to work on scenarios that were mostly based on time, i.e., how many quarters the lockdowns would last. Managements subsequently rolled out business continuity plans.

The impact of COVID-19 on big companies, as any good businessman will attest, depends largely on cash flows, stashed savings, and efficient cost management. Given such, decisions on how to cope will dictate survival or demise. For some companies, like those in the airlines business, more than a year of slack business in the face of huge loans had meant radical measures, e.g., filing for bankruptcy relief.

Survival stories will surely abound, as companies regain confidence in living with the virus while still under a pandemic. Unlike telecommunication companies and a few others that have “benefitted” during this global crisis, many will chastely recount how they have emerged alive.

Crippled mobility

The Philippine automotive sector is one. Composed of a handful of assemblers and mostly importers, growth during the pre-pandemic era was dependent on the country’s economic resurgence. Not only were there more Filipinos setting aside money to buy a new car, industries needed more vehicles to improve their transport of products and services.

Crippled mobility during the lockdowns was almost immediately harsh on importers who were just starting to build up their networks, and this includes brands like Ford, which had made a comeback to take advantage of the rising buying power of Filipinos.

For importers, the obvious fallback was to scale down operations, including downsizing dealership networks. While banking on a gradual reopening of the economy in 2021, importers of passenger and commercial vehicles had to contend with higher tariffs for a good part of the year, which according to the Department of Trade and Industry (DTI), would protect workers of local assemblers’ downstream partners.

But that is now water under the bridge, as the temporary tariffs were lifted in the second half of 2021, just in time for importers and assemblers to launch marketing and advertising campaigns to capitalize on the Philippine economy’s reopening.

Extending time for CARS

Two assemblers – Toyota and Mitsubishi, both with parent companies based in Japan – were in a unique situation. Both are subscribers to the Philippines’ Comprehensive Automotive Resurgence Strategy (CARS) program, which attempts to encourage vehicle manufacturers to develop local assembly lines through tax perks.

The government had devised CARS for a maximum of three companies, but the offer was already too late even for assemblers like Isuzu, Honda, and Nissan, all of which eventually closed their production lines in 2019, 2020, and 2021, respectively.

Hyundai was also not interested, and given its tarnished sales performance in recent years, could be a likely candidate to follow Isuzu, Honda, and Nissan, and like them, decide to concentrate instead on importing passenger cars and commercial vehicles.

Only Foton, whose mother company is based in China, seems to be optimistic about maintaining a local assembly line. The Philippine dealership is focusing on commercial vehicles, and while competition in the market is intense, being the lone assembler of such has become an asset more than a liability.

As expected, the pandemic had derailed Toyota and Mitsubishi’s business plans for their enrolled vehicles under CARS. The two companies had committed to each manufacture 200,000 units of the Toyota Vios and Mitsubishi Mirage by 2023 and 2024, which may likely not happen.

Both companies have asked the DTI to extend their deadlines by two years, something that is being studied by the Tariff Commission. A decision is expected soon, but even a two-year extension will be difficult for Mitsubishi to deliver in time the 200,000th vehicle.

Toyota had just rolled out its 100,000th Vios from its Sta. Rosa plant, and would likely be more comfortable with producing 100,000 units more by 2026 if the CARS deadline is extended by another two years. Vios remains the number one passenger car in the market, and commands a loyal patronage.

With the country’s centers of commerce achieving higher levels of vaccinated individuals, especially among the working population, the threat of a severe lockdown in the coming months looks remote. This should be good news that the automotive industry needs to capitalize on.

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