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(Look) Motor Vehicle Loans Sustain Robust Growth Despite Slumping Car Sales

Outstanding vehicle loans rose 18% in July, but car sales for the month fell 24% from a year ago
By Lorenzo Kyle Subido |




Passenger and commercial vehicle sales sharply fell by almost a quarter in July compared to the same month last year after higher excise taxes on cars came into effect at the start of the year and fuel prices continued going up.


In the first seven months of the year, motor vehicle sales reported by members of the Chamber of Automotive Manufacturers of the Philippines (CAMPI) and the Truck Manufacturers Association (TMA) declined by 13 percent to only 199,628 units from 233,115 units a year ago, according to both industry groups.



But you wouldn’t know that from looking at motor vehicle loans reported by Philippine banks and compiled by the Bangko Sentral ng Pilipinas (BSP). According to the BSP, outstanding vehicle loans grew by 18 percent to Php278.6 billion in July compared to the same month last year. From January to July, outstanding loans grew by an average of 23 percent year-on-year.


CAMPI is an association that includes 16 of the largest passenger vehicle retailers in the country, while TMA is a sister association with nine members that focuses on commercial vehicles such as sport utility vehicles, buses and trucks.


One of the biggest factors contributing to this decline in car sales is the enactment of the Tax Reform for Acceleration and Inclusion or TRAIN law in December 2017. Among the changes introduced by the TRAIN law is the increased excise taxes imposed on automobiles, driving up retail prices for most vehicle models.



Related story: Afraid the New Tax Law will Jack Up Car Prices? Maybe Not, If You’re Buying the Really Expensive Models 




Does this mean that motor vehicle loans are impervious to the slump in car sales? A look at the long-term trend in annual change in outstanding loans and car sales each suggests otherwise. Though outstanding loans continue to rise, the pace of growth seems to have considerably slowed down as well. From an average growth of 30 percent in the whole of 2017, lending for vehicle purchases rose by only 23 percent in the first seven months of 2018. It was only 18 percent in July.


Another factor that could impact car loans is rising interest rates as the BSP moves to raise the cost of funds to control soaring inflation. But that’s another story.







Lorenzo Kyle Subido is a staff writer of Entrepreneur PH

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