Automobile Retail Industry

BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION MAJOR IN MANAGEMENT
School of Management
University of Asia and the Pacific
An Analysis of Automobile Retail Industry
Submitted in Partial Fulfillment of the Requirements for

MGT221: Industry and Region Market Analysis
Submitted by:
Amoncio, Martin T.
Escolin, JC C.
Ilagan, Jason B.
Melendres, Raffy H.
Tirazona,Ivy N.
Submitted to:
Mr. Patrick S. Zeta
Faculty-In-Charge
March 2016
Table of Contents
Chapter 1:Industry Proposal

Definition of the Industry
Industrys Products and Services
Identification of Major Players
Linkages in other sectors in the economy
Relationship of Industry to Macro economy
Chapter 2: Basic Demand and Supply Conditions
Supply Conditions
Production Process
Major Investment Requirements
Raw Materials Sourcing
Sensitivity to Major Supply Factors
Capacity Utilization
Bargaining Power of Suppliers
Demand Conditions
Domestic and Export Market
Demand Determinants
Bargaining Power of Buyers
Chapter 3: Competition
Industry Structure
Major Players in the Industry
Competition from Substitutes
Entry/Exit Barriers
Chapter 4: The Regulatory Environment
Degree of Government Regulation
Government Regulations Affecting the Industry
Effect of Regulations on the Industry
ASEAN Integration
Chapter 5: Industry Performance
Summary of Five Forces
Analysis of Financial Performance
Critical Success Factors
Key Risk Areas
Chapter6: Industry Prospects for the Next Three Years
Growth Projections
Changes in the Market Share and Industry Structure
Significant Changes in the Five Forces
Chapter 7: Conclusion and Recommendation
Summary and Conclusion
Recommendation
Chapter I: Industry Background

A. Industry Background
Definition of the Industry
According to the Philippine Standard Industrial Classification (PSIC) of 2009, the
Automobile Industry is included in the Section G of PSIC Code. This section includes wholesale
and retail sale (i.e. sale without transformation) of any type of goods and the rendering services
incidental to the sale of these good. Wholesaling and retailing are the final steps in the
distribution of goods. Goods bought and sold are also referred to as merchandise. Also included
in this section is the repair of motor vehicles and motorcycles.
PSIC CODE
Section
G
Wholesale and Retail Trade; repair of motor vehicles and motorcycles
Group
451
Class
4510
Sales of motor vehicles
Subclass
45109
Sales of other motor vehicles
Table 1: Based on the Philippine Standard Industrial Classification Code
Sale without transformation is considered to include the usual operations (or
manipulations) associated with trade, for example, sorting, grading, and assembling of goods,
mixing (blending) of goods (for example, sand), bottling (with of without preceding bottle
cleaning), packing, breaking bulk and repacking for distribution in smaller lots, storage (whether
or not frozen or chilled), cleaning and drying of agricultural products, cutting out of wood
fiberboards or metal sheets as secondary activities.
Division 45 includes all activities related to the sale and repair of motor vehicles and
motorcycles, while Division 46 and Division 47 include all other sale activities. The Distinction
between Division 46 (wholesale) and Division 47 (retail sale) is based on predominant customer.
The Automobile Industry is also included within Division 45, which is the Wholesale and
Retail Trade and Repair of Motor Vehicles and Motorcycles. This division include all activities
(except manufacture and renting) related to motor vehicles and motorcycles, including lorries
and trucks, such as the wholesale and retail sale of new and second hand vehicles, the repair
and maintenance of vehicles and the wholesale and retail sale of parts and accessories for
motor vehicles and motorcycles. Also included are activities of commission agents involved in
wholesale or retail sale of vehicles. This division also includes activities such as washing,
polishing of vehicles, etc. This division does not include the retail sale of the automotive fuel and
lubricating cooling products or the renting of motor vehicles or motorcycles.
The Automobile industry is included in the class 4510, which is the sale of motor vehicles
that includes the wholesale and retail sale of new and sales of vehicles.
Industrys Products and Services
Products:
The Automobile retail ranges to numerous types of automobile that includes a 3-door
Hatchback, 5-door Hatchback, Sedan, Wagon, Coupe, Convertible, AUV, MPV, Van, 3-door
SUV, 5-door SUV and a Pickup type (Shankar, 2013). The most popular vehicles among all of
these types is the 5-door SUV or the sports utility vehicle, it is one of the fastest growing vehicle
categories in the industry today. Due to the value for money it offers, with its interior space and
capability to withstand a moderate amount of flood, it is the best type of car for our kind of
environment (Shankar, 2013).
Once the customer bought the product, there is a chance that they may or may not
receive freebies depending on the car dealership. But typically, the product includes the
following freebies (Santos, 2014):
Free three-year LTO Registration anywhere from P12, 000 to P36, 000,
depending on the vehicles classification or type.
Free one-year comprehensive insurance (roughly 5% or less of the vehicles

principal amount).
Free window tint anywhere from P5000 to P40, 000, depending on the window
tint brand and size of the vehicle.
Free under-chassis rust proofing from P5, 000 to P10, 000, depending on the
size of the car.
Free interior cabin matting
These are the typical freebie items you will get from most car dealerships. But this is not
something imputed into the cost of the car; it is something dealerships throw in for free to
sweeten the deal.
Services:
Services included are depends on the condition of the car after the purchase. If the car is
less than three years old and has fewer than 36,000 miles (or whatever the terms of warranty
are), mechanical problems will be fixed under the bumper-to-bumper warranty for no charge.
However, this doesn't cover wear items like brake pads, and since the car is still cover under the
"routine maintenance" of the dealership for which the customer requires to pay. Routine
maintenance is most often oil and filter changes, tire rotations and various inspections. After
about the length of your warranty, the routine maintenance often becomes more involved and
more expensive, for example, the change of oil every 3,000 miles, filter change, tires rotation,
maintenance repairs, etc. Buying a new car will merit a cost of about P2, 500 worth of
maintenance for every 5,000 kilometers driven (Santos, 2014).
B. The Industry and the Macroeconomic
Identification of Major Players
Based on the report of CAMPI (Chamber of Automotive Manufacturers of the Philippines,
Inc.) and AVID (Association of Vehicle Importers and Distributors), the key players in the
Automotive Retail Industry in the Philippines are Toyota, Mitsubishi Motors, Hyundai, Ford,
Isuzu,
Honda,
Nissan,
Kia,
Suzuki,
and
Chevrolet
(Inquirer,
2015).
But to understand more about the Philippine auto industry, one must look at the
background of CAMPI and AVID. CAMPI was founded in May 1995 by Jose Ch. Alvarez to
strengthen the auto industry by consolidating the players into an all-inclusive organization and
coordinating with the government in forming policies, programs, regulations and standards for
the industry, including the Motor Vehicle Development Program and Progressive Car
Manufacturing Program which have been superseded by CARS (Campi, 2014)
On the other hand, AVID was organized in July 2010 by Ma. Fe Perez-Agudo, the
president and CEO of Hyundai Asia Resources, Inc. AVID aims to improve the industrys
competitiveness by assisting government and private sector experts in crafting a system of
industry laws and regulations that advance free and fair competition and consumer welfare.
Toyota
Toyota Motor Philippines Corporation or TMP is an automotive manufacturing company
that formed in August 3, 1988. It is a joint venture of GT capital holdings GT Capital Holdings,
Inc., Toyota Motor Corporation, and Mitsui & Company Limited. In the year 1995, Toyota Laguna
was declared as a special economic zone. The special economic zone had 82-hectares of the
special zone houses Toyotas manufacturing plant and head office. In addition, it is also a place
for a number of investors performing the strategic roles in the manufacture and export of the
automotive products to ASEAN, Japan and other parts of the world. Toyota Motor Company is
the largest automotive company in the Philippines. It includes 17 lined-up models and sales
distribution. The service network is composed of 47 outlets nationwide. Toyotas models include
Vios, Innova, Fortuner, Rav4, Camry and many more models. Toyota is the distributor of Lexus
brand in the Philippines and also includes a dealership in Metro Manila (GT Capital, n.d.).
Mitsubishi
Motors Corporation is the longest staying automotive company in the Philippines, and it
offers world-class products and services. Mitsubishi markets 16 models of vehicles, which
include Lancer Ex, Montero, Mirage, and many more models. Hikosaburo Shibata is the head of
the Mitsubishi Motor Company. The company makes thousand of vehicles a year. It has 190,224
square meters in Ortigas avenue extension. Mr. Shibata focuses on four major concerns namely
Manufacturing, Marketing, Labor and Community Involvement. Mitsubishi Motors Corporation
continuous to provide customers with the best products and services (CAMPI, 2014).
Hyundai
Hyundai was ranked the fifth-largest automakers in the year 2007 and it includes two
auto-related subsidiaries. It exported its first made car called the Pony in 1976. Now, Hyundai
exports a million high qualities of vehicles. In 2012, Hyundai sold over 3.6 million cars
worldwide, and up to 16.3 percent in the year 2009. Since it is employing 78,000 nationwide, it
focuses on implementing a new global policy that includes product development, design, sales,
marketing, and consumer services to satisfy its customers (Hyundai Motor Company, n.d.).
Ford
Ford Philippines has a four billion Laguna Plant located in Greenfield automotive park in
Sta. Rosa Laguna. It has a capacity of 25,000 vehicles per year and can produce different
vehicles. The top vehicles of Ford Philippines include the Everest, Ranger, and Expedition.
Lastly, Ford Philippines is the second largest automotive company in the world (Ford
Philippines, 2015).
Nissan
The Nissan Philippines, Inc. (NPI) was founded on September 23, 2013 and is a joint
venture formed by Nissan Motor Co., Ltd. (Nissan) and longtime partners Universal Motors
Corporation (UMC) and Yulon Philippines Investment Co. Ltd. (Nissan Corp., n.d.) Nissan
Philippines Inc. (NPI), which has a 3 percent market share, aims to grow at a faster 40 percent
increase in sales this year to improve its market share to 8 percent saying the consolidation of
its two separate entities in the country would give them enough power to push products in this
strong domestic motor vehicle market (Magkilat, 2015).
Linkages with other sectors in the economy

The automotive retail sector affects many other sectors in the Philippine economy.
Plenty of sectors have use for automobiles whether it be for transporting goods, transporting
employees, or transporting customers. The other sectors linked with the automobile retail in the
Philippines are the public utility sector and the commercial sector. According to an online article
published by Rappler (2015) the Chamber of Automobile Manufacturers of the Philippines
Incorporated (CAMPI) and Truck Manufacturers Association (TMA) reported an increase in
sales of vehicles for the first quarter of 2015 compared to 2014. The sales in the first quarter
grew from 51,722 in 2014 to 62,882 in 2015, a 22% increase. The trucks and buses under the
commercial vehicle category saw a large increase in sales from 419 units in 2014 to 706 units in
2015 according to the report. The reason for this was that the public utility sector had to comply
with the re-fleeting program issued by the government as mentioned in the report. Government
programs such as the re-fleeting program would cause the public utility sector to heavily depend
on the automotive retail industry as they are forced to change the vehicles regularly. The
commercial sector depends a lot on the automobile retail for vehicles as a means to transport
their goods and produce their services. Both the commercial sector and the public utility sector
are affected by the automotive retail industry as a change in price of vehicles could affect their
day-to-day operations (Rappler, 2015).
Relationship of Industry to the Macroeconomy

The automobile retail market is influenced by a variety of individual features and
macroeconomic conditions. This includes new car demand, first car versus replacement car
demand, used car demand, used and new car sales ratio, car parc density and income levels
(KPMG, 2013)
Every automotive retail market goes through certain maturity stages: firstly an easy
selling period, it is characterized by strong new car demand leading to the development of a
large and reorganized retail network structure, followed by a hard selling period, leading to a
consolidation and centralization of the retail network, due to decreasing first-car demand. Each
maturity stage requires a unique retail strategy and distinct set of management competencies
and KPIs. These have to be re-evaluated as soon as a retail market shows signs of changing
from easy to hard selling mode (KPMG, 2013)
Parts retailers are also affected by the normal macroeconomic environment, but to a
lesser proportion. Their own merchandising and remodeling initiatives and unit development
strategies influence these usually less-mature, faster-growing outfits. And also, they are subject
to secular long-term trends, including fluctuations in the older-vehicle population and the
number of licensed drivers. Because of their more attractive growth profiles, parts company
stocks, by and large, trade at higher price/earnings multiples than dealer issues. Notably, about
70% of all parts purchases made by consumers and commercial customers are need-based,
rather than discretionary. This helps to shield aftermarket parts retailers from unwelcome
economic headwinds (Value line Corp., 2015)
Chapter II: Basic Demand and Supply Conditions

A. Supply Conditions
Production Process
Partnering with
Automaker
Importing
Managing
Inventory
Distributing
Invetory
Operating
Stores
Advertisin
g
Demonstration
Negotiating the Sale
Figure 1: Production Process of Automobile Industry
Automobile Retail Industry is the business of selling new and used cars. The process
involved in selling cars. Dealership advertises automobiles they have available and provide a
location for potential customers to see the cars. The salesperson then qualifies the prospect to
see what type of automobile is desired. He shows or demonstrates the car. Then the
salesperson tries to convince the prospect to buy the car, often through negotiation. If the
decision is positive, the prospect becomes the customer who purchases the vehicle (Kurtus
2012). The Production process of the Automobile Industry is mainly focused on the Midstream
to Downstream of the Value Chain since its main production process consist of buying and
selling.
In conclusion, the activity of selling a new or used automobile consists of advertising
because it let a potential customers know what is available and where to go to see it. The
salesperson then qualifies the prospect to see what type of automobile is desired and
demonstrates the car. He tries to convince the prospect to buy the car, often through
negotiation. The person will either agree to buy the car or go elsewhere.
Major Investment Requirements
There are over 530 players in the Automotive Retail Industry. It must have 21 passenger
car and commercial vehicle assemblers and distributors, 256 parts maker, and must have more
than 240 dealer outlets nationwide.
To make a vehicle in the Philippines, the Automobile Retailers should be a member of
the Motor Vehicle Development Program to produce a vehicle. In addition, it must have certain
requirements, that includes a 40% parts content and having the right budget to meet the foreign
exchange rate when importing other components.
The Philippine Automotive Manufacturing Industry or PAMI has an estimation of 8,000
workers in auto-manufacturing. 256 of the auto parts is located in Manila, Laguna, and Cavite
that generated over 68,000 jobs. Lastly 340,000 are under the auto-supporting industry. Even
though high-skill requirements are needed, PAMI accepts high school and vocational graduates.
Raw Materials Sourcing
The raw materials are the basic material used to in making a product. Since the main
product of Automobile Industry is the Car itself, the raw materials sourcing are heavily found in
the Automobile Manufacturing Industry. To support that, the Automobile Retail Industry source
the raw materials by the Automobile Manufacturing Industry. According to H. Kallstrom (2015),
the raw materials account for the biggest cost of production for automobile manufacturers. The
article shows that the one of the top 4 cost drivers of manufacturing of the automotive industry
are raw materials. The raw material is the 47% of the total cost of production. Looking inside,
the total raw materials consists of 47% of it is steel, 8% is iron, 8% is plastic, 7% aluminum, and
3% glass with steel amounting to 22% of the total cost of production (H. Kallstrom, 2015). This
means that the automotive industry would heavily depend on the steel industry for its
production, as a change in price of steel will heavily affect the automotive industry.
An article published by Crain Communications (2013) shows a chart of the top suppliers
of automotive parts to the different manufacturers around the world. The chart shows that the
top suppliers of automotive parts for the year 2012 is Robert Bosch GmbH based in Germany
with its total sales amounting to $36,787 million with 52% of the total sales going to Europe.
Meanwhile, the highest supplier of automotive parts that is based in Asia is Denso Corp. from
Japan. The estimated sales of Denso corp. for the year 2012 amounts to $34,200 million with
71% of its total sales coming from Asia according to the article published by Crain
Communications (2013). Denso corp. is ranked #2 worldwide for automotive parts suppliers in
2012 as shown in the chart.
Sensitivity to Major Supply Factors
Economy
The economy is a factor that affects multiple industries. The good economy will drive up
spending of the population and this increased spending would require the automotive industry to
hire workers and increased their supply in order to keep up with the growing needs of the
populace. An economy that is experiencing a recession on the other hand would have to lay off
workers as a result of the reduce spending of the people due to the recession. The automotive
industry would have to reduce their supply in order to continue to become profitable in these
times.
Price of Raw Materials
Another factor that affects the supply of the automotive industry is the price of raw
materials. Since the cost of raw materials of automotive manufacturers to produce a single
vehicle is 47% of the total cost (H. Kallstrom. 2015), an increase in price of commonly used
materials such as steel will easily affect the supply of automobiles. It was mentioned in an article
written by A. Klettner that in 2010 an increase in steel prices occurred as the steel
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manufacturers wanted to take advantage of the rising demand in metals. This caused Toyota to
warn their car and parts suppliers so they could adjust prices and avoid a decrease in profits.
Government Policies
Regulations and rulings made by the government may also affect the supply of the
automotive industry. It is mentioned in Toyotas report on risk factors (2011) that the laws and
regulations made by the government heavily affect the industry. Industries are required to find a
way follow the vehicle safety, minimum emission levels, and noise levels set by the government
while still being able to keep the price down for the consumers. Other regulations that affect the
industry are laws that affect raw materials such as mining ban. M. Ramesh (2011) mentions in
an article that the automotive industry fears shortage of raw materials due to government in
Karnataka issuing a mining ban. The article mentions that three different manufacturers use
material from that mine in order to produce cylinder blocks and heads that make up automobile
engines.
Natural Calamities
Fortuitous events such as earthquakes and storms have an effect on the supply of many
different industries. One example of a natural calamity that heavily affected the supply of the
automotive industry is the Great East Japan Earthquake in March of 2011. Toyotas Risk Factors
(2011) mentions that Toyota had to stop all of its operations due to the damages the earthquake
caused. Toyota reported that it was able to resume operations as of April of 2011 for its
domestic factories but factories overseas were still unable to return to full operations as of
December 2011.
Capacity Utilization rate measures the rate of potential output levels are being met. In a
business world, if a company is running at 70% capacity rate, it has room to increase production
up to a 100% utilization rate without incurring the expensive costs of equipment. Capacity
utilization rates can also be used to determine the level at which unit costs will rise
(Investopedia).
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In the Automotive Retail Industry, the automotive retail industry can be based according
to numbers of automobile produced compared to the number of sold cars. According to the
report of CAMPI and AVID, the industrys target of 310,000 units is for the entire year. The table
below shows that first half sales (January to June) of Automobile Retail Industry in the
Philippines (Inquirer, 2015). Also, the potential market sales of 310,000 are divided into to two to
get the potential market sale for the half year.
Actual Units Sold last January June 2015
Toyota
57, 717
Mitsubish
Hyunda
i
25, 198
10, 689
Ford
Isuz
Hond
Nissa
10,
10,
427
169
8, 735
5, 186
Kia
4,
Suzuk
Chevrole
t
4, 843
3, 991
898
Total
141,
853
Figure 2: Actual unit sold based on the report of Inquirer

Capacity Utilization Rate
Actual
141, 853
Potential
155, 000
91.52%

Overall: Low
The Bargaining Power of Suppliers in the Automotive Retail Industry can apply a
competitive force in an industry by raising prices or reducing the quality of the car they sell. The
bargaining power of suppliers is low because there is many other manufacturers from across
the country chosen to be the supplier of the Automobile. Moreover, it takes many importers to
accomplish this, when there are many suppliers (manufacturer) in the Automobile Industry, they
do not have much power to increase the price of the car since there are many other automotive
manufacturer in the market from different countries that the retailers can easily switch to another
retailers if they want to. For example, Toyota has more than 10 different suppliers in US. The
main qualifications of the suppliers are the quality, cost, and delivery of the products. If suppliers
cant meet those basic considerations, there is many other manufacturers to chose from (Martin,
2014).
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B. Demand Conditions
Domestic Market
The Philippines has the fifth lowest car ownership in the world, with about 47 percent of
Filipino households not owning a car, according to the Nielsen Global Survey of Automotive
Demand. (GMA News Online, 2014). Furthermore, the Philippines are among the Top 10
countries globally with the highest intention to acquire a car within the next two years. The
survey showed 76 percent of Filipinos would buy a car in the next two years.
The Automotive demand in the Philippines has been relatively low and for many
households owning a car has been financially out of reach (Jamieson, 2014). However, it is
expected that a more strong automotive demand in the next years as more households join the
middle class and reach the financial mean to make their first car purchase.
Among Southeast Asian car owners, Filipinos at 72 percent are the fifth highest globally
who view a car as an important symbol of the success they have achieved in life. In the
Philippine setting, almost majority of the consumers in the Philippines are middle class, Filipinos
are not only in a better position to buy the things they want and need, they are also looking to
make purchases which demonstrate their improving social status (Jamieson, 2014). Car
ownership is the ultimate symbol of the success they have achieved (GMA News Online, 2014).
Export Markets
In the Philippine Automobile Retail Industry it is given that our country do import vehicles
to and not export. The export goods (equipment and parts produced locally) lies on the
Automobile Manufacturing Industry that are then used by the most major players in the industry.
Demand Determinants
Financing Options
13
According to the Auto industry reporter, car loans is the biggest driving factor for the
development of the demand of automobile industry. Attractive consumer loan programs raise
the strong demand for passenger cars and commercial vehicles, and have made the Philippine
auto industry thrive. A recent BSP (Bangko Sentral ng PIlipinas) survey showed banks reported
an overall net increase in the demand for household loans in the first three months of the year
because of low interest rates and attractive financing terms. This development happened
despite continued tightening standards on loans extended to households. The growth in
consumer loans was driven by a 26% rise particularly on in auto loans to P244.61 billion.
Consumer loans continue to finance housing and cars for Filipinos. In 2014, one of the
fastest growths among all categories was automotive lending. Automotive demand in the
country continues to grow as more sellers offer attractive rates coupled with very low down
payment from financial institutions (Carmudi PH, 2015).
Advertising And Marketing
According to the 2013 McKinsey report on Automotive Retail Innovation, it states that
auto dealers are no longer the primary source of information especially for consumers between
18 and 34. Consumers up to 90% in this group use a mix of OEM (Original Equipment
Manufacturer) and dealer sites, forums, blogs, and social media to gather information and
compare prices and offers before making their final decision. Taking Internet to research and
purchase cars became more hit to auto dealer consumers.
With Internet and mobile penetration, it shows that the growing car shopping experience
online is beginning to align that of Western Markets. In the Philippines, one of the top five
countries in Internet and mobile penetration, almost 80% of car buyers use the Internet to
conduct research on a car before making a purchase (Carmudi PH, 2015)
Price Of The Car
One of the major factors that affect the demand of car in the market is the price of the
commodity. As the law of demand also states that with an increase in price the demand of the
commodity decreases and vice versa.
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Income Of Consumer / Buyer

The income of the consumer or buyer of the car is a very important factor of demand.
With growing economic expansion and growth of the middle class, the Philippine automobile
industry showed an outstanding performance throughout last year and early 2015. In the first
quarter of 2015, the sales reached 62,882 units, which broke the 60,000-unit record for the first
time.
The ASEAN Automotive Federation reported that on the first half of 2014, the Philippines
is the fastest-growing automobile market in the region, ahead of Singapore, Malaysia, Indonesia
and Vietnam. Higher income, plus easier financing, has contributed to stronger sales, especially
in private cars (Carmudi PH, 2015)
Increase In Affordability
The trend between GDP Per Capita and level of car ownership relies heavily on a
countrys economic development. Countries with low GDP per capita are seen to have a
similarly lower level of car ownership as only few people, even the wealthy ones, are able to
afford a car. Countries with greater population density tend to continuously improve on the
public transport system and infrastructure, leading to a lower need for private cars or other types
of vehicles. In other emerging markets, where the public transport system and infrastructure
improvements are growing slowly, and safety standards are not being met, there is a greater
incentive for people to opt for their own vehicles rather than rely on public transportation
(Carmudi PH, 2015)
New Offerings
Car sales increase when a new model hits the market. Due to escalation in competition
in Philippine car market, frequency of new model launches has increased. In the past one year
only the Philippine car market has seen many launches namely Toyota, Honda, Mitsubishi,
Suzuki, Mazda, Ford, etc.
15
The bargaining power of buyers is relatively high. New vehicle buyers like to shop
around, collecting a wealth of information on the Internet and using it to negotiate with many
dealers. In addition, because switching costs are low and new designs are well differentiated, it
is possible that a market trend attracts large shares of the buyer market from one automaker to
another. Consequently, The net effect is high buyer power.
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Chapter III: Competition

a. Industry Structure
There are two methods that can be used to identify an Industry Structure. One method is
the Herfindahl Index and the Firm Concentration Ratio. In this analysis, the Herfindahl Index will
be utilized in the computation of the structure of the Automobile Retail Industry. The formula of
the Herfindahl Index is as follows:
sales of a firm
]2
total industry sales
Following the formula of the Herfindahl Index, and according to the Department of Trade and
Industry (DTI), the total annual output of the Automotive Industry in the Philippines valued 368Billion pesos. The total sales are divided from the top three firms: Toyota, Mitsubishi, and Ford
which are (168 Billion), (P69 Billion), and (P32 Billion) respectively. The computation for the
market structure of the industry is shown below:
168 Bi llion
2 +
368 Bilion
69 Billion
2 +
368 Billion
32 Billion
2 = .2511297785 or 25%
368 Billion
The firm concentration ratio method was also used to compare the results of both methods and
to accurately determine the industry structure. The formula of the firm concentration ratio is as
follows:
sales of all major players

total industry sales
Computing for the industry structure using the concentration ratio, the total industry sales, with
P368 billion, and the sales of each major players stays the same. The sum of the major players
sales amounted to P269 Billion. The computation using the concentration method is shown
below:
17
168 Billion+69 Billion+32 Billion

368
= 0.7309782 or 73%
The Automobile Industry is under the Oligopoly because the industry lacks competition
and product differentiation that are sources of market power. And also, there is only a few
producers who produce an automobile since the industry requires large capital requirements
before entering the market. In effect, there is only limited number of firms that can enter into the
Automobile Industry in the Philippine Market. (Gilani, 2015)
Industry Structure
Tight Oligopoly
Figure 3: Industry Structure
Herfindahl Index
.35
Concentration Ratio
73%
b. Major Players in the Industry

Toyota Motor Philippines
i. Market Share
Toyota Motor Philippines Corporation (TMP) is the reigning market leader with 45.2
percent share (CAMPI, 2015), who sold a total of 17,579 units in the January-February period of
2015 versus 13,988 units in the same period in 2014. TMPs performance surpassed its market
share to 44.7 percent from its past performance of 43.03 percent in the same period last year.
The total revenue of the automotive industry generated production valued at P368-billion while
the total sales of TMP generated up to 164 Billion pesos. The strong sales of Toyota last month
were made possible through the continuous high demand of its best-selling vehicle in the
Philippines, the Vios, with sales of 2,012 units. Other strong models in Toyotas line-up such as
the Fortuner, Innova, Wigo, Hilux, Avanza and Corolla Altis are further strengthened during
Februarys sales.
ii. Operations, Locations of Operations, Major Markets
The manufacturing plant and head office are located in Santa Rosa City, Laguna. It is a
82-hectares which they call the Toyota Special Economic Zone. It is also home to a number of
investors performing strategic roles in the manufacture and export of automotive products to
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ASEAN, Japan, and other parts of the world. TMPs manufacturing plant proudly produces the
Innova and Vios. It is capable of producing 35,433 units per year on two-shift production
operations.
Makati City. The company also has marketing offices at the 28 th and 31st floors in
GT Tower International in Makati City (CAMPI, 2015).

TMPs dealers are located throughout the Philippines including in Metro Manila, TMP
dealers are located on Abad Santos, Alabang, Balintawak, Bicutan, Commonwealth, Cubao,
Global City, Makati, Manila Bay, Marikina, North-Edsa, Otis, Pasig, Pasong Tamo, Quezon
Avenue and, Shaw. For Luzon they have dealers in Baguio, Batangas, Cabanatuan, Calamba
Laguna, Camarines Sur. Dagupan, Dasmarinas-Cavite, Isabela, La Union, Marilao Bulacan,
Plaridel Bulacan, Puerto Princesa, San Fernando Pampanga, San Pablo Laguna and, Taytay
Rizal. In Visayas they only have 9 branches which includes, Bacolod, Cebu, Mandaue North,
Mandaue South, Dumaguete, Iloilo, Tacloban, Tagbilaran and, Roxas. Finally for Mindanao they
only have a handful of 6 branches, Butuan, Cagayan De Oro, Davao, General Santos, Tagum
and, Zamboanga (Toyota, n.d.).
iii. Ownership and Length of Presence in the Industry
Incorporated on August 3, 1988, Toyota Motors Philippines has been in the country for
over 25 years and is a joint venture of GT Holdings, Inc., Toyota Motor Corporation, and Mitsui
and Co. Ltd. The Chairman of the Board is DR. George S.K Ty who serves his position since
2007 (GTCAPITAL, n.d).
iv. Rivalry/ Strategies for Competing

The Key Competitors of TMP in the Philippines include: Mitsubishi, Hyundai, Honda,
Isuzu, Nissan and Ford. They all compete for the same market share, with Mitsubishi as their
close competitors with 18.7 % of the market share (CAMPI, 2015). Their competitive
advantages are: (1) Product Quality, Durability and Reliability and the (2) Value for Money, they
offer affordable vehicles that has a high resale value in the market. Toyota also takes measures
in environmental issues surrounding their products. They are active in managing powertrain
efficiency and reduce the vehicle load, which in return saves fuel for the vehicle that will make it
cost efficient. They also made a variety of Hybrid, Plug-in, and electric vehicles.
19
Mitsubishi Motor Philippines

i. Market share
The Mitsubishi Motor Philippines is at the second leading market share of 18.74% (CAMPI,
2015). While according to the DTI report, the total revenue of the automotive industry generated
production valued at P368-billion. In conclusion, the total sales of Mitsubishi Motor Philippines
summed up to P68, 963,200,000.
The Mitsubishi Motor Corporation (MMPC) located their manufacturing plant in the Auto
Park Avenue, Greenfield Automotive Park, Sta. Rosa City, Laguna, since the province are great
asset for business growth and expansion. The Head of the MMPC, Mr. Yoshiaki Kato made sure
that the leading company focuses on four major concerns: Manufacturing, Marketing, Labor /
Management Cooperation and Community Involvement. Furthermore, since the Mitsubishi
Motor is known as a company with Total Customer Satisfaction, the company assuredly focuses
on aligning the delivery of products and services to the complex and changing needs of the car
buyers in the Philippines. The Mitsubishi Motor Corporation continually providing world classproducts and services to the Philippine Market. Since the image of world class products and
services are being provided, the companys target market are the young executives from the
upper-middle income bracket. The company made sure that the valued customers gets the
quality product at its reasonable price (MMPC, 2012).
The Mitsubishi Motors Philippine Corporation (MMPC) was established as Chrysler
Philippines Corporation during February 20, 1963. Through years of offering world-class product
and services, it is known as the longest automotive company in the Philippines. In fact, last
2013, the company celebrates its 50th anniversary for its long-run operations (MMPC, 2012).
20
The MMPC president and chief executive officer is Mr. Yoshiaki Kato. He is also had a
significant positions in Mitsubishi companies in different parts of the world (Palana, 2015).
MMPC selected three seasoned management Filipino experts coming from different fields apart
from the automotive industry. These are Mr. Juan B. Santos, Mr. Deogracias N. Vistan and Mr.
Edgar O. Chua. These three business experts have professional management experience that
is important in expansion plan and successful business that will benefit the country (MMPC,
n.d.).
Since the target market of the Mitsubishi Motor Company are the young executives from the
upper-middle income bracket, the competitors of the Mitsubishi Motors Company are Honda,
Toyota, Nissan Motors, Hyundai Motors, and Ford which offer the same target group. According
to Mr. Shibata, the MMPC President and CEO, the strategy includes the
twenty-one (21)
hectare land in Laguna, in order to increase their production of sales and production capacity.
Mitsubishi motors have good sales in the Philippines, and it enables them to continue growing
as a business even though the market competition is high. With the new hectare in Laguna
bought by Mitsubishi, it will be able to make 30,000 units annually. In addition, it can also
produce 50,000 vehicles yearly (MMPC, 2015).
Ford Motor Company
i. Market share
According to CAMPI (2015), for is ranked 3 rd for total market share of the automotive
industry in the Philippines having 8.6% of the total shares and had P31, 648,000,000 of the
industrys total revenue. In an article written by V. Saulon (2016), Ford was able to increase and
hit record sales 25732, an increase of 25% making the Philippines Fords no.2 biggest market in
the ASEAN region.
Fords operations within the Philippines are only retailing. In 2013, Ford had to shut
down its manufacturing plant in Sta. Rosa, Laguna due to lack of economies and small supply
21
base according to an article in Rappler (2012). The article states that even though Fords
manufacturing in the Philippines has ended it will still continue its retailing operations and even
expanded to 12 additional dealerships totaling 35 within the whole Philippines.
Ford retailers are all over the Philippines that include provinces and cities such as Ilocos
Norte, Cebu, Bohol, Metro Manila and Zamboanga (Ford, n.d). Ford has its largest amount of
retailers in Metro Manila with 6 dealers in Quezon City, 1 in Manila, Muntinlupa, Taguig,
Paranaque, Taguig, and 2 in San Juan (Ford, n.d).
In recent years Ford has been working to expand its target market. Cunningham (n.d)
wrote that one of Fords biggest growth areas of sales are 18-24 year old. Because of this Ford
has decided to expand itself further into that target market by trying to integrate the use of
technology into their vehicles. Ford is trying to integrate technology into the modern automobile
without promoting driver mobile usage as to avoid accidents (Cunningham, n.d).
In 1896 Henry Ford, the founder of Ford Motor Company, builds the Quadricycle which
was powered by a 4 horse power engine and had 4 bicycle wheels. The Quadricycle could be
said to be a prototype of todays modern automobile. Henry Ford then joins the Detroit
Automobile Company in 1899 but it was not until 1903 that Ford Motor Company is
incorporated. It was in 1913 that Ford started using the assembly line to produce automobiles.
The Fords assembly line proved to be one of the most important innovations as it was able to
significantly cut the amount of time needed to produce a single automobile. In 2003 Ford Motor
Company celebrated its 100th year anniversary and to this day still continues to be one of the
worlds top automotive manufacturer and retailer (Ford, n.d.).
As stated in Ford Companys corporate website the current President and Chief
Executive Officer of the company is Mark fields since 2014. Fields started working at Ford
Motors Company in 1989 and holds a degree in economics as well as an MBA from Harvard
business school according to his profile at Fords corporate website. The current Executive
Chairman of the company is William Clay Ford Jr. William Ford earned a masters degree in
management from Massachusetts Institute of Technology as well as an honorary Doctor of
Environmental Sciences and Engineering degree from KPC University, honorary doctor of laws
22
from University of Michigan, and honorary doctor of humane letters degree from Bradley
University (Ford n.d). The managing director of Ford Philippines is Kay Hart who was appointed
back in 2013. Kay Hart has been working as Dealer Development and Field Operations Director
of the company since 2009 (Ford Philippines, 2013).
Fords market penetration helps them to be one of the best selling vehicles in the
Philippines. They sell more products to their customers and it enables them to grow as a
business. Ford a number of dealership and increasing their sales volume. Ford offers new
products to its customers, and they invest new products through R and D (Ford Focus Electric).
In contrast, Fords weakness is their market development. Ford has not yet taken any action to
enter new industries and segment (Meyer, P. 2015).
ISUZU CORPORATION
i. Market Share
In 2015, Isuzu Philippines is one of the top three brands in the Philippines, and it
maintained its spot to number three. It sums around 29,072,000,000 billion (368,000,000,000 x
7.9%) sales revenue and had a total market share of 7.9%, and sold over 14,000 units. In
addition, it increased it sales by 69%. (Isuzu hold 8% market share: Maintains third spot in
industry sales 2015).
Isuzus sales in August 2015 increased by 66% and sold over 12,000 units compared to
its 7,000 sold units in 2014. Their MU-x is one of the best selling SUVs with over 6,000 units
sold (Mercurio, 2015).
Isuzu Philippines is known for its diesel-powered vehicles. In 2012, Isuzu selected the
Oracle automotive industry to gain a better management excellence and business processes.
The products of Oracle will help Isuzu to have a good competitive advantage. In addition,
Oracles E-business suite 12.1 will help Isuzu to be more productive (InfoChat, 2012).
23
Isuzu started in the Philippines in the year 1995. Their main office is located at 114
Technology Avenue, Laguna Technopark, Bian Laguna, 4024. It has 14 branches in Luzon, 8
branches in Metro Manila, 8 branches in Visayas, and 5 branches in Mindanao (Isuzu
Philippines, 2015).
For Isuzus target market, they are targeting the share of the truck market in the
Philippines, especially the heavy-duty category of trucks. In they year 2014, Isuzu Philippines
introduced the CYZ dump truck and EXR fuel tanker. These two trucks were imported from
Japan (Isuzu targets more truck sales 2014).
Isuzu started in the year 1916 in Japan. After the Second World War, Isuzu began to
make truck to deliver food for the countrys reconstruction. In 1972, General Motors had a
partnership with Isuzu to build the General Motors, and in 1995, Isuzu opened in the Philippines
(Isuzu Philippines, 2015). Hajime Koso is the President and CEO of Isuzu Philippines (Isuzu
Philippines names new President-CEO, 2015).
For Isuzu, competitive pricing is one of their strategies in the market. In addition, their
trucks and buses are also the factors that helped them increase their sales in 2015. Isuzus Nseries in Metro Manila and Visayas Region (Mandaue and Cebu) helped the manufacturers to
be recognized not only in Metro Manila, but also in provincial areas. We are adamant that these
sales figures will continue to grow due to the fact that Isuzu is committed to provide its very best
to Filipinos with regards to quality of our vehicles. As stated by Mr. Koso, the CEO-President of
Isuzu Philippines (Competitive pricing boosts Isuzu sales, 2015.)
Competition from Substitutes
For this study, the main two competitions from substitutes of the automotive retail
industry that will be discussed are the bicycle industry and the rail transportation industry. These
two industries are growing fast and threatening the automotive retail industry. With the traffic in
24
the Philippines, especially Metro Manila, getting worse every day, the number of people looking
for substitutes to automobiles is growing in order for them to avoid the rush hour traffic.
I.
Bicycle Industry
First that will be discussed is the bicycle industry in the Philippines. Riding a bicycle is an
environment-friendly alternative to using automobiles as well as a healthier choice due to the
exercise given by riding a bike. The industry has been growing and the government saw the
benefits of using bicycles instead of automobiles. The government filed a bill called the Bicyclist
Act of 2014 that encouraged people to ride bicycles to their destinations in order to reduce
traffic and pollution in the Philippines. According to an article written by F. Rodriguez (2014), the
bill will establish Local Bikeway Offices across all cities and municipalities in the country. The
article mentions that the Rep. Emi Calixto-Rubiano from Pasay city, the representative who filed
the bill, said that there is a need for better infrastructure for the projects proposed by this bill to
work. F. Rodriguez (2014) also mentions in this article that one of the provisions of the proposed
bill is to have a system to register bikes, require riders to wear proper safety equipment, as well
as the creation of parks for leisurely bike rides. If Congress passes bills such as these, more
and more people will switch to riding bicycles instead of enduring the horrible rush hour traffic.
This will certainly cause the demand for automobiles to reduce in the future.
Just last 2014, Trek, the worlds largest bike brand has just opened its first store in the
Philippines at Bonifacio Global City according to R. Fernandez (2014). The store offers Treks
full range of products ranging from road bikes, mountain bikes, and city bikes. Trek Bikes
strategy in their first Philippine branch is to allow its customers to thoroughly customize their
bicycles according to their needs through Treks Project One customization program (R.
Fernandez, 2014). Treks customers would be able to customize the paint job of their bicycles
as well as choose specific modifications of certain parts of the bike. Trek also has a system
called Precision Fit that measures the riders efficiency on their bicycle to help them choose
the right one. The price of Trek bicycles ranges from 12000-700000 PHP. This offers a cheaper
and more environmentally friendly alternative to automobiles especially in the heavily populated
areas in the Philippines such as Metro Manila.
Another brand, Shimano that is a Japanese bicycle maker has opened a P1.32B facility
in Batangas to manufacture different bicycle parts as well as accessories (L. Desiderio, 2015).
25
The facility in Batangas is Shimanos first within the country and employs 1000 workers during
its operations. As stated in the article, Shimano is a firm that has 40 factories and sales offices
with around 13000 employees and operates in more than 20 different countries.
With the growing health and environmental consciousness of the people as well as the
terrible traffic conditions in the Philippines, the bicycle industry is becoming a larger threat to the
automotive industry every day.
II.
Rail Transport Industry
The rail transportation industry is also a substitute of the automotive industry that they
must compete against. An operator of rail transportation within the Philippines is the government
owned Philippine National Railways. According to PNRs corporate profile (n.d), the company
was officially formed during the Spanish colonial era in November 24, 1892 which was then
called as the Ferrocarril de Manila-Dagupan and then renamed to the Manila Railroad Company
during the American colonial era and renamed once again in June 20, 1964 by Republic Act No.
4156 as Philippine National Railways. The PNR operates two commuter rail services. One of
which runs through Metro Manila and the other in the Bicol region that is currently under
rehabilitation as the PNR plans to extend the railway through Naga City and Legazpi City.
Another company in the rail transportation industry is the Light Railway Transit Authority
or LRTA, and just like the PNR, is government owned. Their company profile (n.d) states that
the LRT was first established in July 12, 1980 under Executive order No. 603. The LRTAs
operations are within Metro Manila with two line systems with the first line spanning 18.073
kilometers and the second line 12.56 kilometers. The LRTA promotes itself as being able to
provide reliable, efficient, dependable, and environmentally friendly rail system according to
their company profile (LRTA, n.d).
The Metro Rail Transit Corporation or MRTC is another company in the rail
transportation industry and is government owned like the other two rail transportation
companies. The MRT line is placed along EDSA, which is known for heavy traffic conditions
especially during the rush hours. The MRT system was built in order to reduce the traffic
congestion in Metro Manila caused by automobiles and is designed to carry 23000 passengers
per hour in both directions and can be expanded for 48000 passengers (DOTCMRT3, n.d).
26
Due to the worsening traffic conditions in Metro Manila, more and more people are
considering taking the MRT and LRT lines are substitutes for automobile transportation such as
private cars or buses. According to the Philippine Year Book of 2013, the revenue and number
of passengers for the railway industry increase significantly from 2012 to 2013. The report
shows that in 2012 the total number of railway passengers in 2012 amounted to 15,616,072 with
revenue of 181,110,047 pesos and in 2013 these numbers increased to 19,957,604 passengers
and 234,389,292 pesos. This shows that more people are willing to substitute automobile
transportation for railway transportation, which is most likely due to the heavy traffic in Metro
Manila.
Barriers to Entry/Exit
Capital Requirements: High
One of the barriers to entry in the automotive retail industry is the extremely high amount
of capital that is required to purchase physical stores, raw materials thats going to be used, as
well as to hire and train employees, and also the services each automotive retail has to offer in
order to compete with its competitors. Because of the high cost in capital as of today there are
no local automobile retailers in the Philippines there are only foreign companies like Toyota,
Mitsubishi etc that was able to penetrate the market. There are a lot of foreign automobile retail
companies that has penetrated the market in the country because they all have established
themselves as top brands in their own respective countries and all of the Filipinos trusts them
already because of the credibility that they showed (Investopedia, N.D)
Product Differentiation: High
Each type of automotive retail franchise will have their own unique factors that affect the
demand for their services in order to attract customers and to stand out in the industry because
of the nature of the industry. So its important to understand what those factors are.
The
companies can use their own spin to it in the industry in order to acquire brand loyalty to the
customers. Like for example there are companies that offer cheap cars so that some people can
afford them. Toyota can attest to this because one of their top selling vehicles is Vios. Some taxi
companies in the Philippines use Vios as their brand of choice because its cheap and the gas is
durable it can last for days. The companies also have their own promos that can be used to
27
attract customers. The automotive retail physical stores also plays a big role in differentiating
themselves from the completion. There are stores that are big in area or small. The size of the
stores determines how many vehicles a car company can store in order to show to the public.
Obviously the bigger the store theres a wide variety available the smaller the store limited
(Pergerson, 2015).
Brand loyalty
This is important to every company in the market not just the automotive retail industry in
order to sustain its consumers. Brand loyalty is difficult to get in the automotive retail industry
because consumers can just switch car companies to the other unless they cannot afford their
products. For an average consumer there choices of car brands are Toyota, Mitsubishi or Ford.
These three companies has the most loyal customers in the market because of the quality of the
products they make, but as of now Mitsubishi faces a difficult time in keeping their customers
loyalty because of the controversies they are facing right in one of their products. This is an
example that quality is the most important characteristics that car companies must focus on
because one single mistake in their product can cost a lot of negative feed back of the company
from its consumers.
Switching cost: HIgh
The switching cost in the Automobile retail industry is high. Let's say if you would like to
change from buying a Honda car to a Ferrari one, this would take you a higher amount of
money for you to pay. However, the switching cost is not only mean in term of the money or the
amount you have paid, but this also involves your time, energy used. Since a car is quite
expensive and that customers want to find and get the best products, therefore the cost of
switching from one brand to another brand is high and the range of price among brands are
quite different.
Access to distribution channels: High
In the automotive industry Access to distribution channels is another high barrier to
entry. A company must find a dealership to sell their automobiles or have their own dealership.
Space in the dealerships lots is very limited making it difficult to have a wider variety of
inventory.
28
The automotive retail industry has high exit barriers, which means that firms would rather
keep competing with each other than to close their business, because of the high costs and
investments. It would be a waste if they just decided to exit out the market. Unless they are
bankrupt which a not well-known car company might have a problem with.
29
Chapter IV: The Regulatory Environment

A.
Degree of Government Regulation

Government Regulations affecting the industry
1. EXECUTIVE ORDER No. 877, s. 2010: The Comprehensive Motor Vehicle Development
Program
2. EXECUTIVE ORDER NO. 182: The comprehensive Automotive Strategy Program
SECTION 1. Comprehensive Automotive Resurgence Strategy Program. The
Comprehensive Automotive Resurgence Strategy Program, herein referred to as the
stimulate demand and effectively implement industry regulations that will revitalize the
hub.
The thrust of this Program is to provide time-bound, and output or performance-based
fiscal support to attract strategic investments in the manufacturing of motor vehicles and
parts thereof. Other non-fiscal measures already provided by existing laws, rules and
regulations, shall continue to be systematically implemented by the relevant government
agencies.
SECTION 2. Coverage. The CARS Program shall be limited to the manufacture of three
(3) Models of four-wheeled motor vehicles, and shall cover the following activities:
Production of the enrolled Models;

Manufacture of Body Shell Assembly and Large Plastic Assemblies of the
Model;
Manufacture of Common Parts and Strategic Parts not currently produced in
the country at Original Equipment Manufacturer (OEM) standards of the
Model/s; and
Shared Testing Facility for vehicles and/or parts.
30
SECTION 4. Functions of the BOI. The BOI, as the lead implementing and coordinating
agency of the CARS Program, shall perform the following:
Act upon the recommendation/s of the Inter-Agency Committee on

Automotive Industry Development established under Section 5 of this
Executive Order;
Oversee the implementation of the CARS Program;
Submit the annual report on the performance of the CARS Program to the
Office of the President (OP);
Coordinate automotive industry development efforts of all concerned

agencies and instrumentalities of the government; and
Perform such other acts, as may be necessary or incidental to the exercise of

its function and powers and the discharge of its duties under this Order.
SECTION 5. Inter-agency Committee on Automotive Industry Development. An Interagency Committee on Automotive Industry Development, herein referred to as the Interagency Committee, is hereby created to administer and implement the CARS Program.
The Department of Trade and Industry-BOl representative shall act as Chairperson of
the Interagency Committee, with members from the following:
Department of Finance (DOF);
Department of Transportation and Communication;
Department of Science and Technology;
National Economic and Development Authority;
Technical Education and Skills Development Authority;
31
The Co-Chairman of the Industry Development Council; and
The Co-Chairman of the National Competitiveness Council.
The BOI shall also act as the Secretariat of the Inter-Agency Committee.
SECTION 7. Criteria for Enrollment of a Model. The criteria for the enrollment of a Model
shall be based on, but not limited to, the following:
Track record and Model competitiveness;
New investments in Body Shell Assembly and Large Plastic Parts

Assemblies;
Planned volume, as may be determined by BOI, but in no case lower than

two hundred thousand (200,000) vehicles over the Model Life up to a
maximum of 6 years;
Economic impact of the investment plan for the Model, including impact on
the parts manufacturing industry and linkages, jobs generation, and overall
consumer welfare;
Overall competitive environment and long-term industry development; and
Compliance with fuel efficiency and emission level standards as may be

determined by BOI, which in no case shall be lower than the standards under
the Clean Air Act.
SECTION 8. Eligibility and Qualifications of Participants. The participating Car Makers,

Parts Makers and Shared Testing Facility Proponent must meet the following
qualifications, and such other criteria as may be required by BOI:
32
Minimum Qualifications for Car Makers:
An internationally-recognized Car Maker/brand owner and/or its authorized in country

licensed manufacturer acting jointly with an internationally-recognized carmaker/brand
owner;
Proven global track record; and
Existing multinational operations.
Minimum Qualifications for Parts Makers
Endorsed by the PCM to manufacture parts of its enrolled Model;
OEM automotive Parts Maker and/or its authorized in-country licensed manufacturer
acting jointly with an internationally-recognized carmaker/brand owner;
Proven track record; and
A member of good standing of the Philippine Parts Maker Association.
Minimum Qualifications for the Shared Testing Facility Proponent
Collectively endorsed by the PCMs; and
Proven track record.
SECTION 10. Fiscal Support. The registered Participants may be entitled to two (2)
kinds of fiscal support during the enrolled Model Life, up to a maximum of six (6) years,
namely: (1) Fixed Investment Support (FIS); and (2) Production Volume Incentive (PVI);
Provided, that the Participants satisfy the following qualifications:
Criteria to be Eligible to FIS
33
New investments in the manufacture of Parts and/or establishment of Shared Testing

Facility;
Delivery of Parts to the PCM within the prescribed period as stipulated by the BOI;
Introduction of the enrolled Model to the market using the Parts manufactured under this
CARS Program;
Consistently meeting the criteria for enrollment of PCMs; and
Attainment of other conditions that the BOI has imposed at the time of registration.
Criteria to be Eligible to PVI
Manufacture of at least fifty percent (50%) of the assembly by weight in the case of Body
Shell Assembly;
Manufacture of major components of the assemblies in the case of Large Plastic Parts
Assemblies;
Exceeds one hundred thousand (100,000) units in production volume; and
Attainment of other conditions that the BOI has imposed at the time of registration.
This fiscal support shall be computed based on the Segment Weighted Average Price,
Standard Production Support, and Logistics Efficiency Index, as defined in this Executive
Order,
during
the
manufacture
of
the
enrolled
Models.
SECTION 11. Establishment of the Automotive Development Fund in the General

Appropriations Act. The Department of Budget and Management (DBM), in coordination
with the BOI, shall propose, through the National Expenditure Program, the inclusion of
an Automotive Development Fund (ADF) in the annual General Appropriations Act
(GAA), to fund the fiscal support to be granted to registered and eligible Participants.
34
The total fiscal support for the CARS Program will be given beginning 2016, and shall
not exceed Twenty-Seven Billion Pesos (P27 Billion), with each enrolled Model qualified
to a fiscal support in an amount not exceeding Nine Billion Pesos (P9 Billion), to be
allocated as follows:
Forty Percent (40%) for FIS, provided that in cases of Parts and Shared Testing Facility,
the FIS shall not exceed 40% of the capital expenditure for tooling and equipment to
manufacture the parts, including training costs for the initial start-up operation for the use
thereof; and
Sixty percent (60%) for PVI. The DBM shall likewise propose that the GAA includes a
special provision providing that the use and disbursement of the ADF shall be pursuant
to this Executive Order.
SECTION 12. Annual Appropriations. The DBM shall indicate in the annual National
Expenditure Program the annual estimated expenditure necessary to support the CARS
Program for that year, until the amount of Twenty-Seven Billion Pesos (P27 Billion) is
fully utilized and/or the financial obligations to the program Participants are fully paid,
subject to DBM policy and guidelines on budget preparation.
SECTION 13. Tax Payment Certificate. The fiscal support for the registered and eligible
Participants shall be evidenced by a non-transferrable Tax Payment Certificate (TPC)-as
provided by law. This shall be used to defray the tax and duty obligations of the
Participants to the National Government, specifically, excise tax, income tax, import
duties, and Value Added Tax (VAT).
Towards this end, the BOI, DBM, and DOF shall draft an efficient and effective TPC
mechanism.
35
SECTION 14. No Double Availment of Incentives. Registered Participants shall not be

allowed to register their activity under any other program granting incentives.
SECTION 15. Monitoring and Compliance. The production volume, including parts
importation volume, among others, deliverables and commitments, shall be subject to
periodic audit. Further, parts makers and/or service providers shall be audited to prevent
parts trading. Registered Participants shall be audited and strictly monitored.
Failure to meet the following shall cause the cancellation of the Certificate of
Registration and/or forfeiture of support, and/or expulsion from the CARS Program:
Investment in the manufacture of Parts and/or establishment of Shared Testing Facility

within two (2) years from the issuance of the Certificate of Registration; and
Delivery of Parts to the PCM within the prescribed period.
The Board may limit availment of support as it may deem necessary. Further, failure to
comply with any of the provisions of this Executive Order, its Implementing Rules and
Regulations, and the terms and conditions of the Certificate of Registration shall be
subject to cancellation, suspension, forfeiture of support, fines and such other applicable
penalties as may be allowed or prescribed by existing and applicable laws, rules and
regulations.
SECTION 16. Implementing Rules and Regulations. The BOI, in coordination with the
DOF, DBM and other concerned government agencies shall promulgate the rules and
regulations to implement the objectives and provisions of this Executive Order.
36
SECTION 17. Review of EO 156 and EO 877-A. The Inter-agency Committee

constituted under this Executive Order is hereby further ordered to review the existing
Motor Vehicle Development Program and other relevant incentive schemes in the light of
the implementation of the CARS program and recent regional and global economic
developments. The review, which should be completed within six (6) months from the
issuance of this EO, may, among others, explore the possibility of providing for new
entrants intending to eventually participate in the CARS program a set of incentives
during a limited transition period.
SECTION 18. Repealing Clause. All executive orders, rules and regulations and other
issuances or parts thereof, which are inconsistent with this Executive Order, are hereby
revoked, amended, or modified accordingly.
SECTION 19. Separability Clause. If any provision of this Executive Order is declared
invalid or unconstitutional, the other provisions not affected thereby shall remain valid
and subsisting.
SECTION 20. Affectivity. This Executive Order shall take effect immediately upon its
publication in a newspaper of general circulation.
Effect of Regulations in Industry
The effect of the Comprehensive Automotive Resurgence Strategy or the CARS

Program is significant to the economy of the Philippines, Signed by President Benigno S.
Aquino III on the 29th of May 2015, in order to attract new investments, stimulate demand and
effectively implement industry regulations that will revitalize the Philippine automotive industry
and further develop the country as a hub for manufacturing automotive. The Bureau of
37
Investments is the coordinating agency of the CARS Program and they are limited to
manufacture three models of four-wheeled motor vehicles and a minimum of manufacturing
200,000 vehicles with a lifespan of up to a maximum of 6 years. The Philippines is hoping to
replicate the success of Thailand in developing its auto industry. The CARS Program is also
expected
to
create
200,000
direct
and
indirect
jobs
in
the
next
years.
Regulations and rulings made by the government may also affect the supply of the
automotive industry. It is mentioned in Toyotas report on risk factors (2011) that the laws and
regulations made by the government heavily affect the industry. Industries are required to find a
way follow the vehicle safety, minimum emission levels, and noise levels set by the government
while still being able to keep the price down for the consumers. Other regulations that affect the
industry are laws that affect raw materials such as mining ban. M. Ramesh (2011) mentions in
an article that the automotive industry fears shortage of raw materials due to government in
Karnataka issuing a mining ban. The article mentions that three different manufacturers use
material from that mine in order to produce cylinder blocks and heads that make up automobile
engines.
Corresponding Government Agencies Affecting the Industry

Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI)
CAMPI actively participates in the production of government policies, regulations and

standards for the automotive industry.
Department of Finance (DOF)
The DOF are contributing to the expansion of the automotive industry towards the
manufacturing sector, DOF are responsible for funding 27 billion pesos worth of tax
incentives for the major players in the Philippines over the next 6 years.
Land Transportation Office (LTO)
Inspection and Registration of Motor Vehicles
Issuance of Licenses and Permits
Enforcement of Land Transportation
Rules and Regulations

38
B.
Adjudication of traffic ceases
2015 ASEAN Integration
Effect of ASEAN Integration on the Industry
The Philippines has recovered its economy due to the ASEAN Integration as it
strengthened the attractiveness to investors internationally. Though the Philippines saw a
decline in the middle of 2010 and 2011, it has recovered and registered its fastest growth in the
first quarter of 2013 with 7.8%.
The numbers looks great since its steady growth but the Philippines is far from being at
par with its neighboring countries, the latest ASEAN automotive federation data showed that the
Philippines has assembled 11,551 vehicles compared to 465,000 vehicles assembled in
Thailand, and 198,000 in Indonesia. With these new data studied, the Department of Trade and
Industry aimed at strengthening the manufacturing sector of the Philippines to provide more
opportunities for the companies to have a strong domestic base and compete with the other
ASEAN manufacturers, there was a similar case with Ford Philippines, who shut down its
manufacturing operations due to the small domestic market.
The Board of Investments also cited that the Department of Finance should also propose
tax incentives for carmakers to further push the automotive industry to improve. Many ASEAN
countries are seeing healthy, if not robust growth rates, based on sound fundamentals and with
39
decent mid-term prospects. Together with the advent of the AEC, this may position the 10
ASEAN countries as attractive alternative locations for foreign direct investment.
The diagram below will explain how the ASEAN members work together as one and provide
each country with specific works and investments needed.
Chapter V: Industry performance

A. Industry Attractiveness
Summary of Five Forces
This study primarily aims to help the existing players in the automobile retail industry to
analyze the competition in the industry. A structural analysis of the automobile retail industry will
serve as guidance in formulating competitive strategies for the current players. In order to
determine the nature of the competition in the industry, it is important to gather and examine
data about the industry is necessary as well as be able to identify the impact of the movie
production industry to the Philippine economy through thorough analysis. The nature of the
competition in the industry must be analyzed through the evaluation of the five forces.
Threats of New Entrants
Industry Attractiveness
Attractive
Moderate
Determinants
Capital
High
High
Requirement
Economies of
Low
High
scale
Switching cost
Cost
High
High
High
High
Disadvantages
Access to
Low
High
Unattractive
distribution
40
channels
Brand Loyalty
High
High
New entrants to an industry bring new capacity that is the desire to gain market shares.
The capital requirement in this industry is relatively high since it needs a large financial
requirement to be able to franchise with internationals automobile manufacturers. Moreover, the
one who is entering the business must invest in a already established brand car automobile
companies to guaranteed income and not loss for the first try. The economy of scale of entry
barriers here has a vertical integration, when there is a operation in successive stage. Here the
new entrant expects cost disadvantages since some of the consumers buy their cars directly to
the in-house units. The switching cost is moderately high since it needs to fund large amount of
equipment, product redesign or new resource. On the cost disadvantage independent of scale,
it is probably high because if the new entrants are pertaining a new automobile brand, he will
face cost disadvantages since there are a lot of established automobile brands in the market
with high brand loyalty from the supports of the car brand. And lastly, the access to distribution
channel is low since the major logical distribution channels are serving the already established
car brands.
Attractive
Moderate
Unattractive
Determinants
Purchase Volume
Differentiation
Switching cost
Market
Low
Low
High
Low
Low
Low
High
Low
Knowledge
Threat of
Low
Low
High
Low
Backward
Integration
Brand Loyalty
Buyers compete with the industry by forcing down prices, bargaining for a higher quality
or more services, and playing competitors against each other. The purchase volume in this
industry is relatively low since the amount of money to buy an automobile needs a lot of money.
Also, automobile has almost low differentiation since all of the functions of the car are almost
found in many automobile car brands. The switching cost face by the buyer is high since for
example, an Isuzu brand car owner wants to buy a Toyota; he needs to add up money to be
able to acquire the price of the Toyota. Most of the time, when a consumer is choosing a car
41
brands he just know the top of mind characteristics of it and not a mere deep information about
it. In effect, the market knowledge becomes low. The threat of backward integration is low since
the demand of parts and equipment to make an automobile is low and will make harder for them
to make an own manufactured car. Lastly, the brand loyalty is high since most of the established
car brands gets the majority of market share nit just locally but also by the influence of
international relation.

Attractive
Moderate
Unattractive
Determinants
# of suppliers
Substitutes of
Low
High
High
High
inputs
Switching cost
Threat of forward
High
Low
High
High
Integration
Suppliers can apply bargaining power in an industry by raising prices or reducing the
quality of purchase. Suppliers in this retail industry are found mostly abroad and almost
captured by the established automobile brands already. Since the supplier knows, that they will
have a long-term business with the retailer, they will probably stayed to a one or two retailer to
supply to. Inputs can be found in many automobiles equipment and parts of suppliers, if the
supplier of the retailer faced many options, it will have a high substitute of inputs in which they
can demand the price of each equipment and parts. It is also connected with the switching cost
wherein the supplier (manufacturer) faced many options in choosing where to get some
machinery and parts in building a car. Lastly, the threat of forward integration is low because it is
subjected with the policies made by firms control.
Intensity of Rivalry Among Existing Competitors
Attractive
Moderate
Determinants
# Of players
Growth of
High
High
High
High
Industry
Fixed cost
Brand Loyalty
Industry life
High
High
Low
High
High
High
Unattractive
cycle
42
Switching Cost
Low
High
Rivalry among existing competitors occurs when competitors feel the pressure or see
the opportunity to improve position. It is sometimes in the form of price competition wherein
rivals easily match price cuts. The number of players is one of the threats between competitors
since they are fighting for the market share on the same ground. Also, it creates instability since
the automobile brand leaders can easily penetrated the remaining market share because of its
growing innovation every year. There is a high industry growth in this industry since the demand
of the automobile is high. Thus, they can easily get the demand of people through the help of
financials loans and all. In terms of fixed cost, there is a high fixed cost or storage cost in the
Industry since it will cost them a land and building to rent for it. The brand loyalty is high due to
the established name that symbolized quality to the consumers. The industry life cycle here is
low since the prices of the cars are relatively high, it will become hard for them to sell all their
products at a large scale. From then, the price of switching cost is low since the price of car has
always a matched to the other car brands.
Analysis of Financial Performance of Key Players

Gross Profit Margin:
Toyota
Gross Profit
Sales
Gross Profit Margin
2012
2013
2014
880,206,443
881,518,205
1,128,449,545
1,681,753,792
1,684,235,971
1,931,941,877
.52
0.52
0.58
Mitsubishi
Gross Profit
2012
473,577,580.23
2013
432,343,083.83
2014
487,132,000.05
Sales
Gross Profit Margin
2,076,274,442.12
.23
2,506,230,868.94
.17
3,186,655,000.28
0.15
Ford
Gross Profit
2012
975,520.80
2013
1,032,663.88
2014
9,774,699,400.00
Sales
6,349,394.86
6984434.18
6849420.58
43
Gross Profit Margin
.15
0.15
1.42
Isuzu
Gross Profit
2012
88,300,430,599.95
2013
10,676,553,058
2014
134,102,074,821.11
Sales
Gross Profit Margin
587,877,624,049.19
.15
695,165,498,528
0.02
739,367,360,102.40
.18
Return on Assets:
Toyota
2012
2013
2014
Return on
Assets
0.012
0.01
0.02
Mitsubishi
Return on
Assets
Ford
Return on
Assets
Isuzu
Return on
Assets
2012
2013
2014
0.001
0.002
0.03
2012
2013
2014
.43
1.12
0.02
2012
2013
2014
.11
.36
0.08
As you can see base on the data gathered by the group Toyota and Ford has the same return
on assets ratio compared to other competitors
B. Critical Success Factors
Critical success factors are factors that an industry need in order to be successful in the
long run. Although there are many factors that can affect the success rate of the automotive
retail industry with the data that the group gathered these are the most prominent out of them
all. First is Positive Image public image is what consumers in the industry look for. A buyer
makes sure that the vehicle they purchased is safe to use. The perception of how the company
acts figures greatly in the buying decision. Factors that greatly influence an automotive retail
company's image include advertising, word of mouth and expert reviews and opinions.
44
Advertising perhaps is one of the important factors in order A automotive retail company
to be successful. With this these the public will know what the company has to offer. In the
Philippines theyre certain events where in car companies show off the products that they can
offer to their consumers. These events sometimes are held in the World Trade center in the
Philippines. Sometimes Car companies have stalls in malls where some of their vehicles are
displayed for the visitors of the malls to see. Second is promotion, Promotion is needed to
employ by the Automotive retail companies in order for them to attract more customers aside
from the product itself promos help consumers to set in their mindset that by availing it can be
more of an advantage to them.
Look at what Mitsubishi is doing right now because of the controversies they face they
tried many options in order for their consumer not to ignore them they have set up stalls in
different malls for their brand new Montero Sports car and have promos such us discounts in
order to attract other consumers.
Lastly efficient operations, efficient operation translates into competitive advantage in the
market. Toyotas success shows the importance of operational efficiency, and showcases the
corporations ability to be flexible and responsive to customer demand. It is clear that in order to
achieve growth, auto companies must realign themselves to attain operational efficiency.
Operations need to be flexible and responsive to customer demand.
C. Key Risk Area

As competition grows, launching new models at short amount of time is of vital
importance, but poses some large challenges for automakers. This is connected to the
automotive retail industry because without new products to sell faster, how can the Automotive
Retail Industry companies keep up in the market.
Improved supplier-manufacturer relationships are another aspect that may well define
the success of the automotive retail industry. Developing a supplier strategy for improving
relations with suppliers will help auto companies to ensure goal compatibility and adopt better
product improvement parameters for retailers to sell.
45
In order to meet environmental norms and customer expectations, it has become a

necessity to install the latest technological features in new automotive products. The real
challenge comes in developing a car or vehicle that meets safety and environmental standards
whilst maintaining excellent performance. Safety is what consumers tend to look at before
buying a car in a retail shop.
Fuel efficiency is also very important and hard to handle because of the inconsistency of
the fuel prices. There are cars in certain companies that focuses on fuel efficient so that will not
be a problem but not all companies do. If consumers want a car that is fuel-efficient they have to
look at specific car models of an Automotive Retail Company.
Chapter VI: Industry Prospects for the Next Three Years

A. Growth Projections for the Next Three Years
46
Presented in the table below are the growth projections of the four major players
(Toyota, Mitsubishi, Ford, Isuzu) for the years 2015, 2016, and 2017. These figures were
estimated through the use of the 3-year moving average formula which is taking the sum of their
sales revenue from 2011-2013 and dividing it by three to get the projected sales for 2014 and so
on. Though this, we can see asses how the company is going to grow in the market.
Toyota
2011
2012
2013
2014
2015
2016
2017
236,048,441
280,295,189
210,235,346
425,508,254
305,346,263
313,696,621
348,183,712.
7
Mitsubishi (Multiplied by the exchange rate for the years 2011-2013; Yen to Peso)
2011
2012
2,811,711.42
3,116,865.92
2013
2,685,948.3
2014
2015
2016
2017
2,871,508.55
2,891,440.92
2,816,299.26
2,859,749.58
Ford (Multiplied by the exchange rate for the years 2011-2013; USD to Peso)
2011
2012
2013
2014
2015
2016
2017
5,677,842,40
5,759,410,80
5,979,521,90
5,805,591,70
5,848,174,80
5,877,762,80
5,843,843,10
Isuzu (Multiplied by the exchange rate for the years 2011-2013; Yen to Peso)
2011
764,393.76
2012
2013
2014
2015
2016
2017
784,041.44
745,014.6
764,483.27
764,513.10
758,003.66
762,333.34
B. Changes in the Market Share and Industry Structure

For the changes of the Market Share, Toyota will still be the number one automotive
company in the Philippines. It had a total of 43,8% market share. For Mitsubishi, it had a 19.1%
market share. For Isuzu and Ford, both companies were at the same percentage of market
share with 7.9% for Isuzu and 7.8 for Ford (Palaa, Voltaire. 2015).
The industry structure will be likely to change from an Oligopoly structure to a
Monopolistic competition, because of Toyotas dominant performance in the Philippines, and it
has been the number one brand of the automobile company in the Philippines.
47
In 2014, it was reported that Toyota was the number one automobile company in the
Philippines for the last thirteen years, and it had a 45% market share in the year 2014. Next in
line was Mitsubishi Motors with a market share of 21%. Ford and Isuzu Philippines were in third
and fourth, with a market share of 8.7% market share for Ford, and a 6% market share for Isuzu
(Perez, Anjo. 2015).
For the changes of the Market Share, Toyota will still be the number one automotive
company in the Philippines. It had a total of 43,8% market share. For Mitsubishi, it had a 19.1%
market share. For Isuzu and Ford, both companies were at the same percentage of market
share with 7.9% for Isuzu and 7.8 for Ford (Palaa, Voltaire. 2015).
To start with, the automotive industry is an Oligopoly structure, because they offer the
same products to customers and differ in the appearance of the model (Gilani, Natasha. 2015).
The industry structure will be likely to change from an Oligopoly structure to a Monopolistic
competition, because of Toyotas dominant performance in the Philippines, and it has been the
number one brand of the automobile company in the Philippines.
C. Significance of the five forces
Threat of New Entrants
High capital requirement due to the land, building, and import products that are needed
for joining an industry. The new entrants must produce a lot of money to compete in the
market
The economy of scale of entry barriers here has a vertical integration, when there is an
operation in successive stage. Here the new entrant expects cost disadvantages since
every stage faces many options also.

The switching cost is high because it needs to fund large amount of money for a change
in equipment, product redesign or new resource.

The cost disadvantage independent of scale is high because if the new entrants are
pertaining a new automobile brand, he will face cost disadvantages since there are a lot
of established automobile brands in the market with high brand loyalty from the supports
of the car brand.

The access to distribution channel is low since the major logical distribution channels are
serving the already established car brands.
48
Bargaining power of Buyers
The purchase volume in this industry is low since there is a need of amount of money to
buy a single car.

Automobile has almost low differentiation since all of the functions of the car are almost
found in many automobile car brands.

The switching cost face by the buyer is high since it needs to add up money to be able to
switch from low brand to a high brand or inverse.

Market knowledge is low, since when a consumer is choosing a car brands he just know
the top of mind characteristics of it and not a mere deep information about it.
The threat of backward integration is low since the demand of parts and equipment to
make an automobile is low and will make harder for them to make an own manufactured
car.
The brand loyalty is high since most of the established car brands get the majority of
market share nit just locally but also by the influence of international relation.
Suppliers in this retail industry are found mostly abroad and almost captured by the
established automobile brands already.

Inputs can be found in many automobiles equipment and parts of suppliers, if the
supplier of the retailer faced many options, it will have a high substitute of inputs in which
they can demand the price of each equipment and parts.

The switching cost wherein the supplier (manufacturer) faced many options in choosing
where to get some machinery and parts in building a car.

The threat of forward integration is low because it is subjected with the policies made by
firms control.
Rivalry Among Existing Competitors
The number of players is one of the threats between competitors since they are fighting
for the market share on the same ground. Also, it creates instability since the automobile
brand leaders can easily penetrated the remaining market share because of its growing
innovation every year.
49
There is a high industry growth in this industry since the demand of the automobile is
high. Thus, they can easily get the demand of people through the help of financials loans
and all.
The fixed cost, there is a high fixed cost or storage cost in the Industry since it will cost
them a land and building to rent for it.

The brand loyalty is high due to the established name that symbolized quality to the
consumers.
The industry life cycle here is low since the prices of the cars are relatively high, it will
become hard for them to sell all their products at a large scale.
The price of switching cost is low since the price of car has always a matched to the
other car brands.
Chapter VII: Conclusion

The automobile retail industry is included in the PSIC code under Section G, which is
wholesale and retail sale of any type of goods. Under section G the industry belongs to division
45, which is the activities related sale, repair, and maintenance of motor vehicles and
motorcycles. This division is limited only to the sale, repair, and maintenance of cars, buses,
50
motorcycles, and other automobiles brand new or secondhand but does not include the rent and
manufacturing of these vehicles. The industry also falls under the class 4510 of the PSIC code
which includes wholesale and retail sale of motor vehicles. The industry sells a wide range of
models of automobiles that includes sedans, vans, SUVs, AUVs, convertibles, and other types
of automobiles. The industry also offers services such as mechanical repairs and routine
maintenance.
The top 4 firms for the automotive retail industry in the Philippines are Toyota, Mitsubishi,
Hyundai, and Ford. The market structure if the industry is oligopoly due to the lack of
competition and product differentiation and the top 4 players having 78.67 of the total market
share. Based on the information gathered, the automotive retail industry is said to be an
attractive industry for the current players.
First the barriers to entry are high as there are high switching costs as well as high
capital and investment requirements as stated in chapter 2 and chapter 3 wherein a player must
have 21 passenger car and commercial vehicle assemblers and distributors, 256 parts maker,
and more than 240 dealer outlets nationwide. The bargaining power of suppliers is also low as
there are plenty of suppliers to choose from as stated in chapter 3. Even though there are
strong substitutes for automobiles, the amount of Filipinos driving cars increases each year and
the Philippines is even expected to be a major automotive market by 2020.
Even though government regulations and policies negatively affect the automotive
industry such as mining bans that could reduce raw materials and regulations such as safety,
minimum emission levels, and noise levels, there are other laws that help the industry. One
such law is the CARS program mentioned in chapter 4. The law is meant to turn the Philippines
into a hub for manufacturing automotive vehicles.
Another indicator that the industry is attractive for current players is the growth
projection. The top 3 players in the industry is projected to all have an increase in sales when
comparing their sales at 2011 to the projected sales at 2017 using the 3 year moving average in
chapter 6 to predict the growth. Toyotas sales are expected to increase from 236,048,441 to
348,183,712.7 or a 32.2% increase. Mitsubishis is predicted to increase from 2,811,711.42 in
2011 to 2,859,749.58 in 2017 or 1.6% increase in sales. Fords sales are predicted to grow from
5,677,842,400 in 2011 to 5,843,843,100 in 2017 or 2.8% increase.
51
Recommendation
The recommendation for the automotive retail industry is to maintain its degree of
industry attractiveness by keeping new players out, having a large number of suppliers, along
with the positive industry growth projection as well as lessen the degree of industry
competitiveness and threat of substitutes. Even though there are substitutes and high
competitiveness among the current players, firms should invest in research and development of
new technology to lessen the threat of substitutes and industry competition.
One way to lessen industry competitiveness is to create more differentiation among the
current players. The current players should market their differentiation and unique selling
propositions to consumers to create better brand loyalty and increase competitive advantage.
Focusing, improving on, and looking more into the critical success factors can do this. As
mentioned in chapter 6 the critical success factors are advertising, promotion, and efficient
operations. The advertising will allow the current players to show off new technology and
models every year as well as its promotions. The automobile industry should increase its
number of car shows every year and increase its number of stalls they have in the Philippines to
reach more customers.
For the automotive retail industry to reduce the threat of substitutes, it can also look to
one of its critical risk factors that is efficient operations. Current firms should research better
methods and technology to improve their operations in order to reduce prices. Since one of the
advantages of the substitutes of the automotive retail industry is low-cost such as bicycles and
rail transportation, having affordable car models will help reduce the threat of these substitutes.
The industry players should also look for fuel alternatives to their products. One of the large
complaints about automobiles is the environmental hazard that comes with the use of fossil
fuels. If the current players look for alternatives to fossil fuels to power their cars such as
electricity and biofuel then the competitive advantage in the area of environmental sustainability
is reduced. A hybrid car such as the Toyota Prius is already a common vehicle in countries like
the United States however it has yet to reach the Philippine market. The sale of vehicles such
as the Prius will help the Philippine automotive retail industry to protect itself from the threat of
substitutes by being more economical and environmentally friendly.
52
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BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION MAJOR IN MANAGEMENT

An Analysis of Automobile Retail Industry

Submitted in Partial Fulfillment of the Requirements for

Chapter 1:Industry Proposal

Chapter I: Industry Background

Free one-year comprehensive insurance (roughly 5% or less of the vehicles

Free interior cabin matting

Linkages with other sectors in the economy

Relationship of Industry to the Macroeconomy

Chapter II: Basic Demand and Supply Conditions

Figure 2: Actual unit sold based on the report of Inquirer

Bargaining Power of Suppliers

Income Of Consumer / Buyer

Chapter III: Competition

sales of all major players

168 Billion+69 Billion+32 Billion

b. Major Players in the Industry

GT Tower International in Makati City (CAMPI, 2015).

iv. Rivalry/ Strategies for Competing

Mitsubishi Motor Philippines

Rail Transport Industry

Chapter IV: The Regulatory Environment

Degree of Government Regulation

Production of the enrolled Models;

Act upon the recommendation/s of the Inter-Agency Committee on

Oversee the implementation of the CARS Program;

Coordinate automotive industry development efforts of all concerned

Perform such other acts, as may be necessary or incidental to the exercise of

Department of Finance (DOF);

Department of Transportation and Communication;

Department of Science and Technology;

National Economic and Development Authority;

Technical Education and Skills Development Authority;

The Co-Chairman of the Industry Development Council; and

The Co-Chairman of the National Competitiveness Council.

Track record and Model competitiveness;

New investments in Body Shell Assembly and Large Plastic Parts

Planned volume, as may be determined by BOI, but in no case lower than

Overall competitive environment and long-term industry development; and

Compliance with fuel efficiency and emission level standards as may be

SECTION 8. Eligibility and Qualifications of Participants. The participating Car Makers,

Minimum Qualifications for Car Makers:

An internationally-recognized Car Maker/brand owner and/or its authorized in country

Proven global track record; and

Existing multinational operations.

Minimum Qualifications for Parts Makers

Endorsed by the PCM to manufacture parts of its enrolled Model;

Proven track record; and

A member of good standing of the Philippine Parts Maker Association.

Minimum Qualifications for the Shared Testing Facility Proponent

Collectively endorsed by the PCMs; and

Proven track record.

New investments in the manufacture of Parts and/or establishment of Shared Testing

Consistently meeting the criteria for enrollment of PCMs; and

Criteria to be Eligible to PVI

Exceeds one hundred thousand (100,000) units in production volume; and

SECTION 11. Establishment of the Automotive Development Fund in the General

SECTION 14. No Double Availment of Incentives. Registered Participants shall not be

Investment in the manufacture of Parts and/or establishment of Shared Testing Facility

Delivery of Parts to the PCM within the prescribed period.

SECTION 17. Review of EO 156 and EO 877-A. The Inter-agency Committee

Effect of Regulations in Industry

The effect of the Comprehensive Automotive Resurgence Strategy or the CARS

Corresponding Government Agencies Affecting the Industry