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Philippines and Vietnam Become Asia’s Newest Car Hubs

Vehicle sales in Southeast Asia are outperforming all other regions of the world, highlighting the massive economic expansion that’s happening in some parts of the region. Car makers are trying to one-up each other to capture consumers with rising incomes and high-earning millennials looking to buy their first set of wheels.

According to BMI Research, the Philippines and Vietnam are set to be the two fastest-growing vehicle production hubs from 2017 to 2021. They also boast 6-percent-plus, economic growth rates, which are among the largest in the world.

Rapid growth

Asia's newest car hubs
Philippines to become fastest-growing car hub in Southeast Asia

For the Philippines, output will surge 300 percent to 359,000 units. Meanwhile output will reach almost double in Vietnam to 112,000 units.

Japan’s Toyota Motor Corp. and French car manufacturer PSA Group (owner of Citroën, Peugeot and Hyundai Motor Co.) are two of more prominent names looking to take advantage of the improving purchasing power of both nations. First-time car buyers are the primary focus, given that existing car ownership is low in both countries.

“Vehicle production in the Philippines and Vietnam will remain largely geared towards domestic consumption,” said Fabrice Gatwabuyege, a Johannesburg-based automobiles analyst at BMI. “To boost their competitiveness as a manufacturing destination, governments must strengthen infrastructure, the business environment and automotive policies,” he added.

Car ownership

Asia's newest car hubs
Car ownership is low in Philippines, Vietnam

Despite growth in the car manufacturing sector, car ownership remains low in both Philippines in Vietnam. Only 6 percent of households in the Philippines own a car, and Vietnam, just 2 percent. Comparing to neighboring countries, the ratio is 51 percent in Thailand, and 82 percent in Malaysia.

BMI predicts car purchases will increase an average 15 percent a year over the next five years for both Philippines and Vietnam.

Automotive growth in the Philippines

The Philippines offered over $500 million of incentives for manufacturers who pledge to produce at least 200,000 units of a single model in the span of six years. So far, only Toyota and Mitsubishi Motors Corp. have committed to the target number. The two are the country’s top-selling brands. Mitsubishi is set to open a local metal stamping plant in 2018, which can increase its output by 50 percent.

Car purchase increased 18 percent compared to the first five months from a year earlier. The growth is massive, considering that the industry achieved a 25 percent growth in 2016. However, industry pundits are expecting a few setbacks, as President Rodrigo Duterte pushes for a sweeping change in tax laws that includes higher levies on cars.

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