Revenge consumerism

Corporate news: San Miguel Corp. (SMC) President Ramon Ang announced that SMC subsidiary Velocità Motors has been chosen by Italian sports car maker Ferrari to be its exclusive distributor in the Philippines (ABS-CBN News, Sept. 3, 2023).

Serving as a prequel to the Ferrari distributorship of Velocità was the setting up of the SMC Asia Car Distributors Corp. in July 2017 (65% owned by San Miguel Corp. and the rest owned by then Palawan Governor Jose “Pepito” Alvarez) for the importation and distribution of BMW vehicles in the Philippines (Rappler, July 18, 2017). This marked SMC’s entry into the motoring business.

Esquire magazine asked Mr. Ang in its April 19, 2021, issue, how luxury car sales were doing at the height of the pandemic. “According to Ang, despite the effects of the pandemic, sales of luxury and exotic cars globally have been brisk. With the super-rich having no place to go because of travel restrictions, buying luxury and exotic cars have become a form of ‘revenge’ shopping and retail therapy.”

Fast forward to the Ferrari launch, and Mr. Ang said the same thing about luxury car sales: “Not even a cooling economy will stop the very wealthy from buying luxury sports cars. Parang revenge travel, ’di ba? Now [its] revenge buying luxury car, ano?”

Two vehicles were presented at the media launch, one of which was the Purosangue 715 hp, Ferrari’s first-ever four-door four-seater to be powered by a V12 engine, with a 0-100 time of 3.3 seconds and a top speed of 309 kph. The selling price starts at P46 million, according to topgear.com.ph (posted Sept. 3, 2023). Aside from the Purosangue, Ferrari also showcased “the 296 GTS, the spider version of the hybrid V6-engined 296 GTB which website motowheeler.com says will cost P23 million.”

“You have to wait two to three years to buy (estimated delivery from ordering), maybe then you will have enough savings,” Mr. Ang teased. “I am confident [in] the luxury vehicle business in the Philippines amid inflation and other global issues affecting [the] supply chain,” Mr. Ang said on ANC.

At the same time that teasers were out for the expensive Ferraris, the Organization for Economic Co-operation and Development (OECD) came out with the discomforting news that it was trimming its gross domestic product (GDP) growth forecast for the Philippines for this year. “In its latest Economic Outlook for Southeast Asia, China, and India update, the OECD said it now expects Philippine GDP to expand by 5.6% this year, slightly lower than the 5.7% projection in March. This is below the government’s 6-7% GDP growth target for this year. The OECD kept its 2024 growth projection at 6.1%, which is still below the government’s 6.5-8% target” (����ý, Sept. 4, 2023).

The OECD said elevated inflation and higher borrowing costs dragged private consumption and investments in the second quarter. The slowdown was also amplified by the contraction in government spending, it added. The annual inflation rate in the Philippines unexpectedly rose to 5.3% in August, from July’s 16-month low of 4.7%. The latest result was also above market forecasts of 4.7%, with food prices rising the most in five months, 8.1% vs 6.3% in July, according to Trading Economics. The high inflation dampened demand, which lowered consumption and slowed GDP growth.

Finance Secretary Benjamin Diokno was very happy with the 7.6% GDP growth seen in December 2022, declaring that “For the Philippines, the worst is over and the best is yet to come.” But the uptick in GDP growth in 2022 “mainly reflected pent-up domestic demand,” according to the International Monetary Fund (IMF) team that held meetings in Manila on May 8-12 this year to discuss recent economic and financial developments and the outlook for the Philippine economy. But 2022 was an election year, and candidates for the executive and legislative branches of government at every level — national, provincial, and local (except for the barangay officials) plunked billions of pesos into the economy in the first half of the year. In Rappler’s “Tracker” of July 14, 2022, more than P1.77 billion was spent by the presidential, vice-presidential, and senatorial candidates alone (not including multiple candidates for 316 seats in the House of Representatives and some 15,273 local government positions).

Inflation is cumulative, and sticky, like the sticky prices that feed it. Inflation is the frightening realization that now there is money, but not enough goods or services available to buy. When the Bangko Sentral ng Pilipinas (BSP) raised the borrowing rates, it was supposed to discourage borrowing and thus lessen spending and hopefully encourage saving excess money through the deferment of spending. But this was not enough to discourage borrowing and spending and to foster savings and investment. “It appears that high inflation and policy rate hikes had a larger-than-expected impact on growth,” Citicorp said in an interview-poll taken of 21 economists by ����ý (Aug. 13, 2023) on the prospects for GDP growth at end 2023.

“To achieve the government’s 6-7% growth target for 2023, the Philippine economy has to grow by at least 6.6% in the second half. An aggressive catch-up plan for infrastructure projects (roads, bridges, airports, seaports, power, water, irrigation, telecommunications facilities, digitalization, school buildings, housing and others), quicker response by GOCCs (government-owned and -controlled corporations), and strong and deliberate spending by resource-surplus local governments are essential parts of the solution to the relatively weak second-quarter growth performance of the Philippine economy,” Mr. Diokno said as he reacted to the ����ý poll. The weaker-than-expected growth in the second quarter was partly attributed to a 7.1% contraction in government spending, which was a reversal of the 10.9% growth a year ago.

The Philippines remains, largely, a consumption driven economy, with most of its GDP being derived from services, trade, overseas remittances and business process outsourcing. Because of this, the retail sector could eventually account for as much as a fifth of GDP (oxfordbusinessgroup.com/2016). Private Consumption was 73.5% of Nominal GDP in June 2023, compared with 78.9% in the previous quarter, according to CEIC economists. In other words, the burden of growth depends largely on the consumption of the growing population with its increasing needs and wants. It desperately feels like a cat turning circles to catch its own tail.

But consumerism is good for business, as it stimulates production and delivery, and gives immediate recognition of income and reinvestment. Economist Adam Hayes of Investopedia calls it a predominantly Keynesian idea that consumer spending is the key driver of the economy and that encouraging consumers to spend is a major policy goal. He acknowledges the apprehension of sociologists that this can lead to a materialistic society that neglects other values. Traditional modes of production and ways of life can be replaced by a focus on consuming ever more costly goods in larger quantities.

And the political economist Thorstein Veblen spoke of “Conspicuous Consumption” in 1899, theorizing that some consumers purchase, own, and use products not for their direct-use value but as a way of signaling social and economic status. This is observably true across levels of society, in the taunting “keeping up with the Joneses” accusation leveled at those who live beyond their means.

Ramon Ang resonated with Veblen on conspicuous consumption, albeit from the business view: “Really wealthy people will always have money, and luxury cars are a form of conspicuous spending. Since travel and other luxuries are not an option these days, buying a supercar seems to be a popular choice these days,” he said in the Esquire interview.

Now even the 51% self-rated poor, and the 31% borderline poor in the Philippines are awakened to the P46-million Ferrari as a gauge of economic and social status.

I can dream, can’t I?

Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.

[email protected]