A Forthcoming Vehicle Sales Boom? The Other Perspective of January 2023’s 42% Sales Surge

 The authoritarian sets up some book, or man, or tradition to establish the truth. The freethinker sets up reason and private judgment to discover the truth...It takes the highest courage to utter unpopular truths—Herbert Spencer  

A Forthcoming Vehicle Sales Boom? The Other Perspective of January 2023’s 42% Sales Surge 

The mainstream associates the surge in January's 2023 vehicle sales with the economy.  Aside from the low base effect, we propose an alternative scenario.

​__ 

Is the mainstream engaged in "whistling past the graveyard?" 

 

Vehicle sales, which usually assume a drop-head role, have become a focus.  It even landed as a front-page headline for a business media outfit.   

 

Yet, the paradox is that while social media cherry-picks data to embellish a picture, other aspects point to an alternative scenario. 

 

Philstar, February 13: Car manufacturers in the Philippines opened the year with a double-digit sales growth, tracking the economy’s recovery from the pandemic. Total motor vehicle sales in January stood at 29,499 units in January, up 42.1% year-on-year, a joint report by the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) and Truck Manufacturers Association (TMA) showed on Monday. 

 

True.  Vehicle sales did register a splendid 42% YoY growth last January.   But this improvement showcases a low base effect.  

 

In January 2022, to recall, the economy transitioned from a shutdown to a reopening with the upcoming national elections as its backdrop.  

 

Figure 1 

 

But here is the thing.  Most media accounts appear to have glossed over or buried the data that vehicle sales plummeted by 20.9% MoM.  Yes, it plunged 21% MoM! (Figure 1, upper chart) 

 

Though January's weakness tends to be seasonal, the monthly vehicle sales appear to have been plagued by diminishing returns since the peak of September 2020. 

 

And to give justice to the conditions of the industry, the nominal unit sales retraced to a 5-month low from the MoM plunge.   This nuance is discernible from the mainstream's chart (MoM and YoY).  

 

From a chart pattern perspective, the January downswing broke the support level of a bearish rising wedge. (Figure 2, lower window) 

 

And there is more.  

 

Figure 2 

 

Sure, January's data seems to resonate with the economic recovery from the pandemic, but even from the standpoint, the annualized vehicle sales underperformed the 2022 real GDP.   

 

While the nominal real GDP passed the 2019 high, 2022 vehicle sales remain far-flung from the 2017 peak.  The annualized 2022 sales remain below the 2019 level too. (Figure 2, topmost chart) 

 

On the other hand, there seems to be another related but alternative picture: vehicle sales have coincided with the CPI gyrations.   

 

Specifically, the runup of the CPI accompanied vehicle sales growth from 2015 to 2018.  The difference was that vehicle sales climaxed earlier (end of 2017) than the CPI (2018).  This divergence was in part due to the higher excise taxes from the TRAIN law. (Figure 2, middle pane) 

 

Meanwhile, the second wave of the CPI also corresponded with the rise in vehicle unit sales.  But here is the thing.  The latter plunged even as the former raged in January to a 14-year high! (Figure 2, lowest chart)  

It should not be a surprise that inflation of auto credit coincided with the CPI boom of 2015-2018 and the latest episode.

Yet, are we supposed to believe that higher-priced vehicles, due to higher taxes and inflation, should represent a boon to demand? 

 

Sure, we can be hopeful that the "uptrend" continues.  But the uptrend seems to represent a short-term picture.  Since its 2017 pinnacle, the latest trend appears to be a "bounce" than a structural recovery.  

 

But of course, the proof of the pudding is in the eating. 

 

Figure 3  

 

Besides, since credit finances most vehicle sales, rising rates will likely have an impact.   

 

Household auto loans (11.5%) reached their highest growth rate since June 2020 last December.  The lending spike coincided with its highest vehicle unit sales since the end of 2017, also during the same month. (Figure 3, upper chart) 

 

We can also deduce that an environment of elevated inflation, rising rates/higher cost of money, and lower economic growth will lead to the rise of auto/vehicle delinquent loans.  The recent improvements in the credit delinquency rates of the household auto loan portfolio represent a product mainly of the BSP's relief measures.  (Figure 3, lower window) 

 

And given the high base of 2H 2022 sales, which likely represents the "normalization" of economic conditions, this could offset gains from the low base effects in 2H 2023.

 

We certainly don't want to be a spoilsport.  But economic logic tells us a different scenario than the popularly held belief.