Car makers picking on the wrong guys

Car and truck makers are barking up the wrong tree in calling for a ban on imports of used vehicles at the Subic free port. The Subic autioneers cater to a clientele separate from the local assemblers’. If the assemblers are losing sales, it’s for a different reason – mostly their own fault. They price themselves out of the market by importing all parts instead of using local materials.

The cheapest brand-new cars now sell for P750,000. Pickups, for P800,000. SUVs, for P1.5 million. Dump trucks, for P7 million. Middle-class buyers and medium-size businessmen simply can’t afford them. So they turn to the second-hand market. Enter the Subic autioneers who offer them used cars and pickups for only P200,000, SUVs for P400,000, and dump trucks for P700,000. The buyers are able to travel around and boost domestic spending, or start up businesses, or improve their services.

Proof of the free-market forces is seen in the customers who flock to Subic’s regular auctions: farmers and fishermen in need of pickups for their produce, office employees and vacationing overseas workers buying their first cars, freight forwarders and construction engineers expanding their operations, small-town mayors and hospital owners looking for firetrucks and ambulances.

Sure, some of them can buy from the local second-hand market. But used-vehicle dealers are not complaining of the new competition. It’s the assemblers who are crying. Yet they cannot offer special-purpose vehicles like firetrucks or ambulances, gasoline tankers or concrete-pump trucks.

For three years now, the assemblers have been raising all sorts of issues against the auctioneers. They say the used cars and trucks from Japan are unsafe because right-hand drive. But the advent of conversion kits has made it easy to transform these to left-hand drives. Then, the used vehicles are checked for road-worthiness under the Land Transportation Office’s motor vehicle inspection service.

The assemblers claim that the used vehicles are smoke belchers. Again, the LTO requires emission tests for any vehicle being registered for the first time. No vehicle is registered without the Certificate of Inspection.

They say the auctioneers smuggle the used vehicles through Subic’s loose gates. Customs and BIR records belie this. The auctioneers paid over P400 million in import duties and sales taxes last year, and almost P200 million so far this year of sluggish sales. By contrast, it was the assemblers who were caught cheating on duties during last year’s Congress inquiry that they themselves had prodded through the Department of Trade and Industry.

The Congress hearings turned up a racket long going on. Assemblers were passing off semi-knocked down units as completely knocked down, thus paying only three-percent duty instead of 30 percent. The cars and trucks were in fact almost completely built-up; assemblers would simply mount batteries and tires, and the units would roll off the plant. The discovery led the Board of Investments to order the assemblers to pay the deficient 27-percent import duty.

The government’s Motor Vehicle Development Program entices car and truck makers to pay only three-percent tariff so that they’d buy local parts and accessories: seats and upholstery, carpeting, mirrors, moldings, steering wheels, rims, air-conditioners, batteries and tires. Assemblers have a yearly quota on local buys, and a schedule to increase the volumes. This in turn would bring down sale prices yet boost local manufacturing. But the assemblers can’t kick the habit of transfer pricing on SKDs. Board directors in their mother companies are themselves makers of car parts and accessories, and thus force the assemblers to buy almost whole units from them.

Assemblies in turn have local partners who are into banking. Their banks funded thousands of brand-new car and truck sales in the ’90s but suddenly found themselves stuck with repossessed units after the 1997 Asian financial collapse. They need to sell the units to improve their cash positions. Is this the reason the assemblers are crying against the Subic imports of second-hand vehicles? If so, why aren’t the bankers themselves making the noises? On the contrary, they even lend the auctioneers capital.

The assemblers are lobbying Malacañang to ban the auctions. An order to the effect has been drafted for final signature. Despite strong DTI support for the assemblers, it’s not clear if President Gloria Arroyo will relent. What she did grant the assemblers this week are new incentives under the vehicle program. But that depends on their own performance. If they can increase their exports of completely built-up cars and trucks, the government will put up tariff barriers on imported vehicles despite the zero-tax agreement among Southeast Asian countries by 2003.

That would give auctioneers more time to prove their worth. Already, they have given jobs to 8,000 families living around Subic in Zambales, Bataan, Pampanga and Bulacan. They employ thousands of workers and improve the businesses of shippers, port operators, cargo handlers and warehouse owners in Subic free port. They also boost Subic’s rent and tax collections by billions of dollars. They have spurred the rise of auto shops that install left-hand drive conversion kits, remake and rewire dashboards, and tune up engines preparatory to emission tests. They also have helped hundreds of farmers and fishermen increase their cash yields, businessmen start up or expand operations, and local government officials to provide better services through used vehicles.

Perhaps, more orders of cars for police patrols, pickups to deliver harvests, SUVs for ambulances, dump trucks for road-building and covered trucks for freight forwarding will show that the auctioneers serve a bigger economic purpose after all than the assemblers.

The new incentives would also give assemblers a chance to review their pricing strategy. Then again, their total sales in January to August rose 9.8 percent from the same period last year. Sales of Asian and sports utility vehicles, vans, pickups, trucks and buses rose 13.4 percent, pulled down only by a 6.5-percent dip in car sales. Yet cars are but a small slice of what Subic auctioneers bring in.

* * *

Are legislators so dense that they can’t imagine the tried-and-tested formula against kidnapping that Malacañang is talking about? Rep. Jules Ledesma naturally cannot give details because police are still closing in on the kidnappers of his two children. But legislators would do well to shut up and analyze things, instead of yakking "me, too" for the headlines.

The tried-and-tested formula is for the victim’s family to cooperate with the police, as Malacañang said about the recovery of Jacky Rowena Tiu from abductors after four days in captivity. And for the press to refrain from reporting the details of police operations, as in the Cavite stakeout to free a baby and nanny of the Lopez clan this month.

The idea is to let the police oversee the negotiations to free the victim. This would include rigging phones with bugs, arduous haggling over ransom, prolonging phone conversations – all so detectives can identify suspects and triangulate where they’re hiding the victim.

Does the formula include ransom payment? Obviously it depends on the situation. Tiu’s parents had paid P10 million ransom, but not before the cops were able to narrow down the hideout possibilities and case the payoff area. Within the day Tiu was released, the police arrested all but one of her kidnappers in two hideouts. They recovered the P10 million intact.

In the case of the Lopez baby, ransom talks – without an actual payoff – did the trick. in the ensuing police raid, Pentagon gangleader Faisal Marohombsar was killed. Baby and nanny came out unscathed.

* * *

Catch Sapol ni Jarius Bondoc, Saturdays at 8 a.m., on DWIZ (882-AM).

* * *

You can e-mail comments to [email protected]