We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Industry Analysis: Automotive Retailing and Trade in the Philippines Essay Sample

essay
The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 3899
  • Category: retailing

A limited time offer!

Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

Industry Analysis: Automotive Retailing and Trade in the Philippines Essay Sample

Several years ago, the Philippine automotive industry was quite small in terms of share in value added in manufactuing, the number of players and its production if compared to countries like Thailand, Malaysia and Indonesia. But this did not end there, from then on the automotive industry started to continuing growing as it promoted expansion and developed its competitiveness.

There are two sectors under the automotive industry, which is the manufacturing sector and the retail, service and repair sector. In this study were about to present, our main focus will be on retailing as a whole. The selling of goods or services for personal or non-business use, even if it’s a manufacturing, wholesale or retail, and it will not be significant whether how they sell and where they are located, all these will be all part of retailing.

This study aims on analyzing the automotive retailing industry based on: First, the number of sales they make, how many cars are registered in the Philippines and CBU imports. Second, the comparison of the top 8 automotive branches based on its market strategies and competiveness. Lastly, we present the analysis of these branches with the financial statements we have gathered.

II. INDUSTRY BACKGROUND
A. Industry Definition
Retailing includes all activities involved in selling goods or services directly to final consumers for personal use. Any organization selling to final consumers is doing retailing. The wholesale and retail trade of automotive industry involves businesses engaged in wholesaling and retailing of automotive vehicles, generally without transformation and rendering services incidental to the sale of vehicles. They are organized to sell or arrange the purchase or sale of (1) completely assembled vehicles for resale, (2) spare parts and (3) car accessories. Furthermore, they cater and sell their products mostly to private consumers, businesses and to government for public use and normally operate from a warehouse or office.

B. Products and Services
In this industry, they sell completely built units or completely knocked down vehicles, from compact cars to heavy commercial vehicles, to provide and to satisfy the needs of the consumers. Aside from vehicles, they also have accessories and spare parts for the cars they put up for sale. For services, they offer financial assistance particularly car loans through banking to make buying cars easier and more affordable for the consumers. Also, they work with insurance companies to provide insurance to the buyers for the safety of their vehicles. Moreover, all dealerships in the country have after-sale services to strengthen their relationships with their customers. They typically offer 3-year warranty, which includes repair and replacement of parts. In addition, they offer maintenance check-ups to maintain the safety and performance of the vehicles. III. BASIC DEMAND AND SUPPLY CONDITIONS

A. Demand Conditions
1. Demand Determinants
The Demand Determinants for the automotive retailing industry in the Philippines are: * Strength of Business Demand for Vehicles
Vehicles are not only for private use, they could also be used for Pub Utility, like Buses, taxis, etc., and for Business, delivery trucks, cargo transporting, catering trucks, etc. The demand for certain vehicles varies from the nature of business and it becomes a determinant for Cars in the Philippines. * Consumer Income relative to Vehicles Prices

The consumer’s income becomes a big determinant of demand for cars because the prices of cars vary and consumers look for a vehicle that is worth the money they are paying for it. The higher the real income of a single individual, the higher the demand for cars will be. * The cost and availability of Motor Financing (Car Loans) Some consumers prefer paying for their cars using a car loan, and the rates of these loans can either be high or low, and if it’s lower than expected, it becomes a consumer favorite. Car loans are also not so common, not all banks would allow car loans, but for the others, the rates must be low in order to raise demand for new cars. * Cost of Petroleum/Gasoline

Prices of Petroleum are important because that determines if the consumer would buy a new car or not. The lower the prices, the higher the demand for new cars; whether it is a diesel engine or gasoline engine. * Consumer Confidence

The world today is going through tough times; countries are going bankruptcies, recessions, even experiencing loss of firms and business. With that said, consumer’s demand goes down because of the threat of losing their jobs, or run out of money, or maybe even worrying about other costs to live life in a daily basis. The confidence of a consumer goes down because of these facts and thus, Demand is affected as well. 2. Bargaining Power of Buyers

The bargaining power of buyers is not that advantageous because most consumers in the Philippines look for the particular favorites from the top brands here in the Philippines. Different manufacturers have other ways to attract buyers, like lowered down payments, free car accessories, extended car insurance, longer instalment plans, and many more.

B. Supply Conditions
1. Supply Conditions
The supply of brand new units of cars here in the Philippines would depend on where the units are assembled. Some corporations would have some of the units assembled here, like Toyota and Ford for example, while others would prefer having them shipped here from other factories overseas. The technique of car dealerships is to have different models assembled here and other have imported from abroad. An example of this would be Ford Philippines, they have two of their cars, the Ford Escape and Ford Focus, assembled in their factory in Laguna, while their other models are imported from Thailand and from Detroit, Michigan. The Supply conditions for some companies are great, but some of them aren’t doing as well. Since some of the known vehicles are imported here from Thailand or any other country, any issue that occurs in that country can affect the supply of new cars in the Philippines. An example would be the Tsunami that hit Japan, that calamity affected the sales of many car brands, Toyota, Honda, and Mazda to name a few. Another example would be the Flash flood that occurred in Thailand, the country with the most car assembly factories in all of Asia. The flood that hit Thailand affected the Supply Chain of automotive brands like Nissan, Ford, Honda, and many more. With the supply chain affected, waitlists for buyers of new cars were prolonged. It became harder to release new units because a large number of newly assembled cars come from Thailand factories, and since Thailand was going through a natural calamity, supply chains were nearly cut off. 2. Bargaining Power of Suppliers

The bargaining power of Suppliers is high because the current world crisis. The availability of cars in the Philippines is less compared to pre-World Crisis times. Suppliers would definitely take advantage of this opportunity because of the fact that there are less suppliers now than there was before, plus with the fact that majority of car manufacturing factories have closed down due to the dwindling economic standpoint of the country, foreign suppliers are the next best thing.

IV. INDUSTRY STRUCTURE AND PERFORMANCE
A. Market Structure of Automotive Retailing
The automotive retailing is considered to be an oligopoly because the decision of one firm is influenced by the decision of the other firms. Additionally, there is a high level of competition in the industry since there are only few companies that distribute and retail cars. The firms also don’t earn a lot because the cost of competition is high and these firms don’t have a large profit margin in vehicle retailing. Consequently, the retailing firms have other sources of revenue such as commissions from financing and insurance companies they offer to the customers. Moreover, competition in this sector is also a price-based competition that’s why companies try to lure customers by having rebates, longer warranty period and, financing or loan.

B. Porter’s Five Forces
* Internal Rivalry
There is a competition in branches of the same branch because these are not owned by the same person and in order to gain profit they should be able to sell more even though they are selling products of the same brand. Having a positive growth rate, which is higher than inflation rate will make companies not take the other companies market share. Companies that exits or sells out will reduce the rivalry of the other companies within the industry. Also companies in the same industry offer different product and brands that will make customers want them more than the other. Lastly will be switching cost, having different prices over the other company or having sales.

* Threat of Substitutes
This will include mainly the different substitutes that are available and also different prices of the products.

* Threat of New Entrants
Having a business like this will have capital requirements and you must be able to have that much money to put up a business like that. Being new to the industry is going be hard since there are customers who are loyal to the brands they have been purchasing. You also need the access inputs. The analysis of economies of scale and learning curve is important because this will determine if there is a higher barrier to entry.

* Bargaining Power of Suppliers
As a supplier, they want to be the only supplier who are supplying in that company. This will simply result to them having more power over the company their supplying in. Companies also prefer a certain supplier that will supply its inputs with the best quality possible. The switching of costs in supplying companies also determine on where they will want to supply. * Power of suppliers

This includes supplier concentration, which means that the fewer the suppliers for a given product will mean that they have more power
over the company. Also there is differentiation of the inputs like in what they supply in each car. They also prefer companies who ask for a huge volume of items. Lastly, it is important that there is a relationship between the supplier and the company.

* Bargaining Power of Buyers
Just like any other human being, buyers will always be price sensitive, which only means that they will choose a product that is on high quality and a low price. Having buyer concentration will mean that the buyers will have more power. The switching costs of the same products will lead to buyers having to choose a lower price than the other one. Also it the competitiveness of other branches will affect buyer concentration. Some customers like buying in bulks for them to save more. But other than these, there are also customers who are loyal to the brand that they have been purchasing ever since. Lastly, government intervention can influence buyers as well.

V. MARKETING STRATEGY
For every company there is a different strategy on how they compete with others. Some use technological advancements as their competitive strategy. Some also use price by selling low-priced units, others depend their strategy on what the market needs, and many more. For every car dealership brand and branch, it is different. Also, target market is another factor. For instance, Ford’s customers are different with Toyota, Hyundai or Honda customers. Quality of cars is another factor; however, this is not the business of the retailer anymore. But some of the general strategies and commonalities that automotive retailers do are marketing sales, customer relationship, financing, and promos. Agents have a significant role here. These agents are expected to be properly trained how to sell (also referred to as “sales talk”) and to know their product very well. Equipping them with these skills will certainly impact sales. Customer relationship is also crucial for the most of the automotive retailers. Building a relationship with a potential customer and taking care of both the customer and car after the sale of unit help increase sales.

With these, they are able to promote quality and service at the same time. Monitoring the customer after the sale of unit is important because it satisfies the customer. Additionally, when the customer is satisfied, referrals will most likely occur, and therefore sales will go up. Some of the car dealerships also offer excellent service especially in maintenance. For instance in Toyota Shaw, they offer an express maintenance. This only includes basic maintenance but it is express since the maximum waiting time for customer is 2 hours only. This service is not present in other branches and brands, which is definitely an advantage over others. Additionally, availability of units is important. Not all car dealerships have the same number of units. They depend on the customers’ demand. So monitoring the demand of the customers and the manufacturing by the plant are both important. If one needs a car and is not available, the tendency is to buy to another branch instead of waiting. So closely monitoring the demand of the customers and the availability of the unit from the plant are of great significance. Location is also important because for an initial customer without any knowledge of the quality and service about different branches, they would choose to go to the nearest dealerships around them with a brand in mind. That’s why most of the time different brands of car dealerships surround each other.

They do this to eliminate advantage over location, especially when the location has a potential for customers. Agents also have a significant role here. These agents are expected to be properly trained how to sell (also referred to as “sales talk”) and to know their product very well. Equipping them with these will certainly increase sales. For example in Toyota Shaw branch and in most of the other car dealerships, they have promos such as the All-in promo, which gives customers a hassle-free transaction by providing units with freebies upon purchase such as free full tank, chattel mortgage, free comprehensive insurance premium, LTO registration any many others included. Others also provide loan offerings for those who cannot afford to pay everything all at once. They give a low down payment with monthly payment and interest payable for up to 48 months. This is also additional revenue for car dealerships especially to those who also own banking services or to those who have banking partners.

To conclude, every brand and branch of car dealership has its own strategies. However, they also share some of the basic strategies that help increase sales such as providing excellent service, offering promos to lure customers, choosing a location that has potential customers, and many more. These elements are basic but it works very well. There are still other important factors that affect sales but are not considered since we are only focusing on automotive retailers. So the design and the quality of the cars being sold are disregarded. VI. FINANCIAL CONDITIONS

A. Total Sales and Registered Vehicles
According to Land Transportation Office (LTO), the total of registered passenger vehicles in 2010 was 58, 989 units. And as stated by Chamber of Automotive Manufacturers of the Philippines, Inc., the total sales of passenger vehicles in 2010 was 58, 691 units, which increased from 2009’s sales of 46,228 units. With these given figures, it can be concluded that the sales of brand new vehicles in 2010 was 58, 989 units and 298 units of 2nd hand imported vehicles.

Not all the vehicles in the Philippines are imported Completely Built Units, some of them are locally made or assembled in the country. Vehicle brands like Toyota and Mazda started to produce locally made vehicles to minimize their costs and sell their locally made products at a cheaper price compared to other vehicles that are imported. For instance, Toyota’s locally made vehicles like Vios, Fortuner and Innova are cheaper compared to other imported vehicles on their specific levels.

B. Sources of Revenue
There are two kinds of vehicle sale: 1) retail sale and 2) fleet sale. Retail sale is a kind of sale in which the dealer sells its products per unit at quite above the suggested retail price. This kind of sale usually occurs in transactions between household consumers and the retailers. Another kind of sale is fleet sale in which dealers sell their cars in volume at suggested retail price. This kind of sale occurs between company/business and dealers. In comparing the two in terms of revenue, retail sales give more revenue than fleet because dealers sell it higher than SRP.

As mentioned a while ago, sales of passenger cars are just a minimal source of revenue for every automotive retailer because they only get a minimal profit margin for every unit they sold and the big percentage of sales goes to the manufacturers of the vehicles. Aside from sales of vehicles, another significant source of revenue for vehicle retailers is services wherein they cater not just the buyers who bought from their specific dealership but they also cater all the buyers of vehicles of the same brand. Retailers offer different services like repair and replacement of vehicle parts and maintenance check-ups to keep their customers’ vehicles in good shape.

Automotive retailers also obtain revenues from its affiliation with financial institutions particularly with commercial banks and insurance companies. In its affiliation with commercial banks, they obtain revenues by having a commission of 5% amount loaned by the buyer. That is the reason why they prefer their products to be brought through financing than COD or Cash on Delivery since they collect more revenue in financing.

On the other hand, in its affiliation with insurance companies, they obtain revenues by having a commission as well depending on the value of the vehicle. For every claim of a customer from the insurance company, the dealership receives a commission from the claim as well. Thus, revenue through commissions from insurance companies is long-term because it continues as long as the customer claims. Unlike the commission from banks, which is short-term, just happens on the time of the purchase of the vehicle.

C. Analysis of Financial Statements
| Total Assets| Total Liabilities| Equity| Sales or Revenues| Net Income| Honda Cars Makati Inc| 1,291,541,000| 838,931,466| 452,609,534| 6,908,024,549| 60,168,391| Toyota Makati Inc| 1,266,783,027| 921,581,007| 345,202,020| 5,354,025,963| 48,113,336| Toyota Shaw Inc| 992,725,870| 876,126,977| 116,598,893| 4,563,177,063| 7,683,986| Diamond Motor Corp| 1,706,858,661| 1,462,542,029| 244,316,632| 5,788,630,219| 6,825,228| Toyota Pasong Tamo| 813,779,478| 610,328,554| 203,450,924| 3,275,122,498| 16,909,227| Toyota Alabang| 453,546,805| 427,553,172| 25,993,633| 3,068,791,177| 7,414,048| Hyundai Cebu| 262,287,062| 229,686,055| 32,601,007|
814,177,022| 3,022,656| Ford Alabang, Cavite, San Pablo, Batangas| 1,005,462,590| 703,090,511| 302,372,079| 2,716,700,577| 58, 284,353|

Debt Ratio checks the business’ long-term solvency and how much a business is in debt. Debt Ratio =Total Debt/Liabilities
Total Assets
Net Profit Margin shows how much profit or net income for each sales of dollar. Net Profit Margin =Net Income
Net Sales
Return on Assets ratio measures how a company uses investment on assets in order to earn profit. Return on Assets ratio = Net Income
Total Assets
Return on Equity is an important ratio for investors as it measures how much money the investors have to put in the company for return. Return on Equity = Net Income
Stock Holder’s Equity

| Debt Ratio| Net Profit Margin| Return on Assets| Return on Equity| Honda Cars Makati| 64.96%| 0.87%| 4.66%| 13.29%|
Toyota Makati Inc| 72.75%| 0.90%| 3.80%| 13.94%|
Toyota Shaw Inc| 88.25%| 0.17%| 0.77%| 6.49%|
Diamond Motor Corp| 85.69%| 0.12%| 0.40%| 2.79%|
Toyota Pasong Tamo| 75.00%| 0.52%| 2.08%| 8.31%|
Toyota Alabang| 94.27%| 0.24%| 1.63%| 28.52%|
Hyundai Cebu| 87.57%| 0.37%| 1.15%| 9.27%|
Ford Alabang, Cavite, San Pablo, Batangas| 69.93%| 2.15% / 40.53%| 5.80% / 41.45%| 19.28% / 44.82%|

In terms of Net profit margin, Toyota Makati is on top with 0.90%, which means 0.9 cent of every dollar is profit. We can say that this is such a low percentage. For Return on assets, Honda Cars Makati leads the way with 4.66%. Meaning, among the 8 retailers, Honda Cars Makati manages its investments on assets well in order to get profit. Then, in Returns on equity, 28.52% is the highest by Toyota Alabang. So it is good to invest in Toyota Alabang compared to other retailers.

VII. SUMMARY AND CONCLUSION
Michael Porter’s five forces help determine the competitiveness of a certain industry they are in through the following factors: Internal Rivalry, Threat of Substitutes, Threat of New Entrants, Bargaining Power of Suppliers and Bargaining Power of Buyers. Although this may not be that accurate but it will give the industry a basic for strategy development, management technique and theories. This is significant because an industry must observe the market they are in by recognize its internal and external factors and also to be able to know its limitations and in develop their firms in the future.

As for financial status, in terms of net income, Honda Cars Makati is on top, followed by Toyota Makati. We can see that the top 2 leader are from Makati, so we can say that a lot of customers buy in Makati. Though Honda leads the way, Toyota has 3 branches that are in the top five, the other one is Mitsubishi – the Diamond Motors Corporation. Now, how come Honda is at the top but is followed by 3 Toyota and 1 Mitsubishi Retailing for the top 5? In terms of location, there is no doubt that Makati City is the place to be for buying cars. The management/owner manages well the Honda cars Makati compared to other Honda retailers, but still, Filipino’s prefer Toyota over Honda, Hyundai and Ford. It’s just that there is a difference between the way of managing each retailing state.

To conclude, every brand and branch of car dealership has its own strategies. However, they also share some of the basic strategies that help increase sales such as providing excellent service, offering promos to lure customers, choosing a location that has potential customers, and many more. These elements are basic but it works very well. There are still other important factors that affect sales but are not considered since we are only focusing on automotive retailers. So the design and the quality of the cars being sold are disregarded.

VIII. BIBLIOGRAPHY AND ANNEXES
BIBLIOGRAPHY

Kotler, P. (2003). Marketing Management as Asian Perspective. Jurong: Pearson publications “Ford Philippines honors top dealers at annual awards gala – News | TopGear.com.ph.” Top Gear Philippines | TopGear.com.ph. N.p., n.d. Web. 14 Mar. 2012. <http://www.topgear.com.ph/news/ford-philippines-honors-top-dealers-at-annual-awards-gala>. “Ford Philippines honors top dealers at annual awards gala – News | TopGear.com.ph.” Top Gear Philippines | TopGear.com.ph. N.p., n.d. Web. 14 Mar. 2012. <http://www.topgear.com.ph/news/ford-philippines-honors-top-dealers-at-annual-awards-gala>. Kate, P. T. (n.d.). Thailand assesses damage as floods hit car supply chain| Reuters. Business & Financial News, Breaking US & International News | Reuters.com. Retrieved March 14, 2012, from http://www.reuters.com/article/2011/10/10/thailand-floods-auto-idUSL3E7LA1L820111010 Riley, G. (n.d.). Economics – Economics Q&A: What economic factors affect the demand for new cars?. tutor2u | Economics | Business Studies | Politics | Sociology | History | Law | Marketing | Accounting | Business Strategy. Retrieved March 14, 2012, from http://www.tutor2u.net/blog/index.php/economics/comments/economics-qa-what-economic-factors-affect-the-demand-for-new-cars Mendoza, A. (2011). In Its 10th Year, Hyundai Sustains Amazing Growth, Retrieved March 12, 2012, from http://business.inquirer.net/36999/in-its-10th-year-hyundai-sustains-amazing-growth Osorio, M.E. (2011). Hyundai Sales Up in May, Retrieved March 11, 2012, from http://www.philstar.com/Article.aspx?articleId=694627&publicationSubCategoryId= (N.A.) (N.D.). Automotive Industry Trends, Retrieved February 22, 2012, from http://www.franchisedirect.com/automotivefranchises/automotiveindustrytrendsbusinessreportii/7/249 (N.A.) (N.D.). Automotive Industry, Retrieved February 22, 2012, from http://encyclopedia2.thefreedictionary.com/automobile+industry

ACKNOWLEDGMENT
Security and Exchange Commission (SEC)
Land Transportation Office (LTO)
Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) Mrs.

We can write a custom essay

According to Your Specific Requirements

Order an essay
Get Access To The Full Essay
icon
300+
Materials Daily
icon
100,000+ Subjects
2000+ Topics
icon
Free Plagiarism
Checker
icon
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access
immediately?

Become a member

Your Answer Is Very Helpful For Us
Thank You A Lot!

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59
Become a Member