Does auto industry unemployment loom in a post-ECQ economy?

Life after lockdown will look anything but normal

AS THE enhanced community quarantine (ECQ) has been extended to May 15, many of us doubtless continue to get progressively antsy, anxious, and basically worried for what’s ahead. Make no mistake about it: The nefarious coronavirus is out there, and it’s waiting to pounce on the careless and those mistaking its invisibility for absence. Even if thousands of people have recovered around the world, the immutable truth is that COVID-19 kills, and neither the dreaded SARS nor H1N1 holds a candle to its transmission rate. That damned virus loves to strike us down.

Truly, before a vaccine is developed and is readily available, we’re playing the microbial Russian roulette every time we go out there. Still, many will contend that it’s not that simplistic a call; that our economy is already hemorrhaging badly, and once the unemployment numbers and the damage to businesses large and small have been crunched, it may be already an impossibly big hole to climb out of.

PHILIPPINE AUTOMOTIVE DEALERS ASSOCIATION’S REQUEST
On April 16, the Philippine Automotive Dealers Association (PADA), which represents some 200 car dealerships across the country, penned a letter to Department of Trade and Industry (DTI) Secretary Ramon M. Lopez. This basically encapsulated the concerns of the sector obviously reeling from the business standstill. PADA appealed to be allowed to “operate on (skeleton) work force basis on or before 20 April 2020.” Copies of the letter, signed by PADA President Willy Tee Ten and the association’s directors, were also furnished Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) President Atty. Rommel Gutierrez and Association of Vehicle Importers and Distributors, Inc. (AVID) President Ma. Fe Perez-Agudo.

While cognizant of what it calls the “COVID-19 crisis” and agreeing with the wisdom of the enhanced community quarantine, PADA brought to light the negative impact on the auto industry that it said “accounts for 4% of GDP (per Board of Investments in 2011).” PADA also rued: “As our industry is highly capital-intensive, the implications of a total lockdown are severe. Companies like us rely on frequent refinancing of funds sourced from our operations. Currently, we are facing a very challenging situation. Without new revenues, we are afraid that some of us will face significant liquidity problems in the short to medium term. Availability of cash vary across the sector, but several companies from our industry will definitely face shortages within a matter of weeks.”

It additionally lamented that the “biggest chunk… of expenses (is composed of) commercial rents and unfortunately… Memorandum Circular no. 20-12 series of 2020 issued by the Department of Trade and Industry considered (it) as (a) large enterprise hence disqualification to avail of the concessions on… commercial rents.”

So, what is PADA asking for? With the skeleton work force (50% of service reporting on rotation basis) it is planning to call to duty, it wants to “ensure that private (vehicles) are maintained and (are) readily available for use in emergency situations and purchasing essential needs” by providing “after-sales services on a ‘by appointment’ and ‘limited’ engagement only.”

Mindful to convey that it is “not (PADA’s) intention to question your wisdom nor the laws as such is not the underlying objective of the protection of the general populace,” the association promises to abide by ECQ measures to help curb the spread of the pandemic by:

• Ensuring that technicians perform tasks one work bay apart for physical distancing;

• Maintaining “strict sanitation” through the use of disinfectants on “high-traffic customer areas,” the “application of protective material (on) the vehicle including seating and steering wheel cover;

• Making the service team and technicians use disposable gloves and proper protective gear;

• Wiping the interior and exterior of serviced vehicles with disinfectants;

• Requiring customers to wear a mask and screen them for body temperature. They will also be provided hand sanitizers, and all reception areas will be screened off by a “clear plastic divider between the customers and service advisors.”

The PADA correspondence continued: “Essential service will strictly follow the guidelines of the IATF (The Inter-Agency Task Force for the Management of Emerging Infectious Diseases) on safety distancing requirements, PPE for workers including but not limited to means of private transport (designated pickup points), thermal guns, company identification cards, work permits, and other requirements and safety measures for employees and clients.”

But last April 22, Sec. Lopez turned down the request, calling attention to the directive of the IATF against emerging infection diseases and the DTI’s own Memorandum Circular 20-08 which pertain to the “permitted manufacturing of basic food and essential products and its related value chain” and nothing more. “Unfortunately, the list does not include the automotive sector. This is mainly due to the urgent need to limit the movement of people and to stop the spread of COVID-19, which is the essence of having the ECQ. Thus, if there would be exemptions, it must be limited to these very essential products that the people cannot live without.”

Nonetheless, we can glean two obvious things from the PADA letter: the auto industry is reeling, but it knows there needs to be sweeping changes in the way it does business to thrive in the time of the pandemic.

SHORING UP TRUST
To the credit of many auto companies (and fuel firms), they have stepped up during the ECQ — offering free rides, discounts, 24/7 emergency roadside assistance, even personal protective equipment (PPE) and other supplies to either customers or frontliners.

Granted, these are good deeds per se, but there is also some strategic benefit to the generosity, selflessness, and charity. These go into the intangible but very real goodwill piggybank.

And these strange days are also a time for something else. “This is the time people will remember the data mining, the customer relations, the Christmas greetings, the Valentines greetings to customers, all the customer service efforts that seemed nothing the past few years. These will reap loyalty as people will still service their vehicle from dealers they trust, and that dealers who have shown a relationship with them when everyone was busy selling,” said a multi-brand dealer principal who requested to remain anonymous.

NEW SHOWROOM NORMAL
Beyond the short-term plea of PADA, you could count on change once the metropolis opens up shop — whenever that will be. Our resource said you can probably expect the following changes in dealerships/casas in keeping with social/physical distancing measures to curb the spread of COVID-19.

1. Service by appointment. Say goodbye to walk-in servicing. You’ll probably have to book ahead for your PMS appointment or other requirements.

2. Payment via online gateways. The traditional transaction with money and with a cashier may have to be forgone in this new touch-free age.

3. Goodbye to showroom visits and mall displays.

4. More 1S (sales only) showrooms will be opened to bring brands closer to people. But again, visitor traffic will be managed.

5. Test drive by appointment. Just before the ECQ was implemented, Glenn Tann, deputy chairman and managing director of Tan Chong International Ltd. (which owns the Motor Image Group of Companies, Subaru’s regional distributor), said that they were looking at the possibility of bringing cars to potential clients for test drives. Another option is to call ahead and arrange for one in advance with your choice dealer.

Do we have cause to worry about car parts and such, given that the global supply chain has been disrupted? The answer is no — at least for now. “We follow a strict distributor inventory policy,” he maintained. So there should be no shortage in the parts bin for common consumables like those used during PMS visits.

WHAT ABOUT JOBS?
I asked a difficult question that we’re almost too scared to contemplate now. Will auto organizations have to downsize amid this new normal? Our dealership principal replied, “We dealers are big borrowers from banks, and we rely heavily on loans versus inventory. The only way we can sustain employees is for banks to cut our commercial loan interests by 50% or more.” He projected employee attrition of 20% to 30%, even up to 50%, in dealerships.

Government programs are looking at rescuing SMEs, but not all car businesses are owned by big conglomerates, he insisted. “They forgot about us,” lamented the executive. “And now we’ll have a new problem: unemployment.”

Make no mistake, however. Like PADA, the dealer principal said he agrees with the implementation of ECQ, even as he admitted it’s doing a lot of damage to businesses.

While the “Bayanihan to Heal as One” Act (RA 11469) is buying people time, our respondent reminded that it ends after the ECQ. “People’s amortizations, credit card bills, and other payables will pile up. Remember, it’s not a free ride; RA 11469 moved the due date. But if the Bangko Sentral ng Pilipinas/Department of Finance will subsidize interests, then that might save us.

“Government should see the unemployment impact — not only in auto but in, say, mall retail stores as well. They are heavy borrowers too, and they’re more pitiful as they rely on walk-ins,” he continued.

“The heart says we pay our employees, but the sustainability, with us being large borrowers, says we will have to choose the banks.”