War between old, new cars centers on pricing
THE OLD VS THE NEW: Which would you rather have — an original DVD or a pirated CD of your favorite movie? Which would you prefer — a brand-new car or a second-hand vehicle?
Of course you would go for an original DVD and a brand-new car. But how come many people still look for pirated DVDs and still buy second-hand cars?
The main reason is pricing — for why would people buy something they cannot afford?
No business would thrive and no product would sell if there is no market for that business and if there is no demand for that product.
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THE PRICE FACTOR: This price-driven mechanism that propels the sale of pirated CDs and second-hand cars is the same market force pushing the sale of used vehicles imported via the Subic Freeport and converted there for the local left-hand-drive market.
We should keep this price factor in mind so we do not get lost listening to the old debate resurrected in the Senate and the media over the importation of second-hand sports utility vehicles (SUVs) from Japan.
The exchange has been generating more heat than light because it is colored by local (Olongapo-Subic) politics.
Instead of debating the question of who is cleaner or who is the better Subic manager between Richard Gordon and Felicito Payumo, we should focus on such central issues as pricing, the law and policies governing motor vehicles.
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AUDIT EVERYBODY: But we welcome the debate over second-hand SUVs if only because it reopens the more basic question of how reasonable are the prices of brand-new vehicles brought in by the car assemblers and indentors.
We dare importers and assemblers of new vehicles to open up and join the discussion. For them to wage a proxy war using their mouthpieces in the Senate and the media against used car salesmen will not serve public interest.
The Subic question has set the stage for lawmakers and policy-makers to take an honest look at the so-called progressive automotive manufacturing program to see, among other things, how it has taken this country for a ride.
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FREE MARKET: There is no question that brand-new cars are generally better (despite the lemons every now and then), but what do we do if the average family dreaming of a car of its own can afford only a used vehicle?
If the correct taxes are paid, no laws are violated and the converted vehicle is safe, there should not be much of a problem — except in the mind of indentors and assemblers who want to establish a cartel composed of themselves.
Regarding the payment of correct taxes, don’t tell me that the indentors and assemblers of brand-new cars are lily pure. We will go back to this point later.
And if we talk of safety, just look at the scandals over expensive brand-new vehicles roaming around with factory defects that the owners may not even be aware of and which some car dealers refuse to fix to the satisfaction of the buyers.
As for pricing, one can buy a competently rebuilt second-hand SUV for one-third the price of a brand-new vehicle of the same brand whose trouble-free operation cannot even be assured.
With all that, why should we force motorists to buy overpriced units peddled by the automotive cartel? Let the free market remain — as long as everybody behaves within the law.
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WHAT WE CAN DO: One thing Congress can do is copy or improve on the practice in more enlightened countries, and where consumerism is strong, of posting the landed cost or the ex-factory prices of motor vehicles.
In the US, anybody with Internet connection can open a website and find out how much a car model cost when it rolled out of the factory. If it is an imported model, its landed cost is posted.
We should do something similar here, using a website of the Department of Trade and other agencies or NGOs, so buyers would know how much the car dealers are gouging from the captive market.
We suggest two other measures:
- Make compulsory the unbundling (same as in our Meralco electric bills) of the retail price of motor vehicles, so buyers would know what part of the price goes to what.
- Make it mandatory for local indentors/assemblers to announce and comply with recall orders of their foreign suppliers or mother companies abroad.
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HOUSE REPORT: Firms that have been importing Japanese SUVs and converting them in Subic to left-hand drive vehicles point out in self-defense that:
- After public hearings, the House committee on transportation and communications and the committee on trade and industry have submitted Report 2157 concluding that no law is violated by the bringing into the Subic Special Economic Zone of right-hand drive vehicles.
- The same report said that no law is violated by converting them to left-hand drive as long as the conversion is made within the Subic economic zone and in a facility accredited by the Subic Bay Metropolitan Authority.
- The report added that the converted vehicles may be lawfully driven out of the Freeport for use anywhere in the Philippines as long as proper taxes and duties are paid and all tests and requirements on roadworthiness and safety and environmental compliance have been passed and duly certified.
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SUBIC DEFICIENCIES: Now if Internal Revenue Commissioner Guillermo Parayno Jr. says the three top importers/converters in Subic have piled up a tax liability of P944 million, he should go after them by all legal means.
The commissioner will do it, I’m sure, especially with President Arroyo now cracking the whip.
Every tax peso collected will help this cash-strapped nation. This is good enough a reason for the BIR and the justice department to also look at older and bigger cases involving taxes reportedly due from some importers/assemblers of brand-new vehicles.
We recall the case of a big dealer that avoided paying excise tax reportedly totaling P1.5 billion by making its SUV appear like an exempted Asian Utility Vehicle by transforming it into a 10-seater with the addition of tiny seats in the luggage section and a long bench instead of the bucket seats in front.
(By citing this case, we do not mean to say that the government’s assessment of unpaid duties or taxes is correct.)
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POOR MAN’S SUV: By this reconfiguration and the putting in of cheaper local content, the SUV-turned-AUV was priced some P200,000 lower and attracted the more numerous lower-income buyers.
Among the items used to dilute the cost were an ordinary coil-spring instead of a double wishbone suspension, a two-wheel instead of four-wheel drive, and cheaper local materials in the interior.
This is a good illustration of how pricing affects sales. When the “Poor Man’s” version of that cheapened SUV came out, its sales shot up by some 700 percent and waiting time was extended to six months.
That raised complaints from the dealers of competing AUVs who felt a dirty trick was played on them and the government. The government stepped in to slap back the excise tax.
What ever happened to that big tax case?
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PARAYNO MOVES: In 2003, the assemblers of brand-new cars reported a sales increase of 12 percent over the previous year. Out of this sale, the sedans’ share went down by 5 percent while that of the SUVs increased by 18 percent.
The above figures from the assemblers themselves belie the claim that Subic converters affect their market because no sedans are brought in through Subic, but only used SUVs and family vans.
And even if cheaper Subic vehicles eat into the pie of the local car dealers, so what? In our free market, the consumer decides what he wants to buy.
The same ploy of adding seats was used, we were told, in the previous administration in Subic where over a 15-month period alone, there were 283 luxury cars and vehicles that did not pay ad valorem taxes totaling an estimated P335 million.
Commissioner Parayno will have his hands full reopening these cases and collecting every peso due the government.