Interviews
18 Feb 18

Corporate Fleet in the Philippines. An interview with Quincy S. Buenaflor, Diamond

Diamond has been around in Philippines for almost half a century. The company offers short term rental, long term leasing and fleet management for purchased vehicles. We are talking today with Quincy Buenaflor, son of the company’s founder and the company’s Vice President for Operations since 2011. I’m lucky to catch him in the Manila office; Quincy tends to travel abroad as much as possible to find out what’s happening in fleet markets outside of Philippines and use his findings as a source of improvement for his own company. But today, we’ll be discussing the fleet market in the Philippines.

 

Philippines versus other countries in South-East Asia

“We’re doing pretty well”, says Quincy. “In terms of maturity, we’re amongst the better countries in the region. On the positive side, there are many leasing or fleet management suppliers, very good dealer and repair networks, fuel cards are widely available… Recently the ETC (editor’s note - Electronic Toll Collection) system has been upgraded which makes it easier and cheaper for corporate employees to use the toll roads. Every year, we see how both the supply chain and the government are making efforts to improve the conditions and we are optimistic that the country's “Build Build Build” effort should drastically improve traffic conditions among the major roads in the country.”

Quincy pauses for a second. “On the downside however, the supply chain hasn’t gone through a consolidation phase yet, as it is the case in Europe. As a result, there is a vast variety of solutions and pricings available that might make it more complex for a global or regional fleet manager to source for the right supplier. In addition to this, you need to understand how to deal with administrative issues, such as the availability of registration plates. Some vehicles have been on the road for over a year and still have no license plates. Another issue are the sudden changes in taxation. Recently, the Philippines’ Government increased the taxation on excise tax of cars and fuel. Whereas the price increase on vehicles was still reasonable, this was not the case for fuel; we’ve seen the fuel price increase by more than 15% in 2017, which had a huge impact on the TCO of corporate fleets.”

 

Savings

The Total Cost of Ownership of car fleets in South-East Asia has been increasing steadily for the last years. It’s partially due to growing economies – companies simply need more cars – but also to the rise of different taxations, high operating costs and vehicle selection. “The Toyota Vios used to be the reference car for corporate fleets. Occasionally, our clients select pick-ups such as the Toyota Hilux, but only for people who need to carry a lot of material or need a car with off-road capabilities such as positions in operations or engineers. Nowadays however, as corporate customers are trying to keep costs under control, we see a switch to the Toyota Wigo, a compact hatchback that’s a lot cheaper than the Vios.”

 

Operational costs – Lease or Purchase?

“For car fleets exceeding 30 vehicles, we recommend to lease”, says Quincy. “It makes sense from a cost perspective, but especially from an operational perspective; large fleets cost a lot of time and FTE’s to operate. Philippines is a big country and not each province is as well developed as Metro Manila (editor’s note - Metropolitan Area of Manila). The number of interactions with suppliers, the amount of invoices to approve and book is simply much higher than what you’d expect in Europe or the US.”

Although leasing is the better option for larger fleets, most of the companies still buy their cars. Quincy explains: “It’s due to a combination of 3 factors. The first one is the diversified supply chain and the types of services that are offered; the lease offering is not yet consolidated. Secondly, there’s need for education; nor the client, nor the supply chain knows or fully understands the advantages of leasing. Finally, most of the local fleet managers will strongly resist against any HQ decision in favour of leasing because this would mean that they fear that they of their colleagues will lose their jobs…”

 

Mobility solutions

It doesn’t take Quincy long to respond. “We’re not there yet. You’ll find Uber, Grab and the likes in the Philippines, but there’s no real incentive for corporate fleets to move away from the traditional solutions. Don’t forget – most employees are allowed to use their company car for private usage and it’s often the only car in the family. Removing that car and replacing it with mobility solutions is difficult. Then, there’s obviously the recruitment aspect and the fact that a car contributes to the social status of the employee.”

 

Corporate sales

Quincy finishes by explaining that corporate sales, by leasing companies or OEM’s, is not as developed as it is in Europe or the US. “It’s not the focus of the supply chain. OEM’s, for instance, don’t offer dedicated fleet models or fleet options packs, nor do they have quota reserved for fleet sales. There’s almost no difference between buying a car as a fleet customer and buying a car as a private person. The same is true for discounts. Whereas in Europe, it’s common to have a discount agreement in place with the preferred OEM’s, it doesn’t really make sense in the Philippines. On very popular models, you’ll get close to zero percent discount, because the demand is higher than the offer. For other cars, the leasing company will most probably have better deals than the corporate customer because we realise bigger volumes. I personally feel, especially comparing to what I read in articles of Fleet Management in the US and Europe, that manufacturers in the Philippines still have a long way to go before reaching a similar level of support to fleet owners.”

 

Outlook 2018

“We hope that the fleet market will continue developing. The main trend for 2018 will most probably be even more focus on savings and the popularity of smaller cars. We’re also looking forward to the implementation of IRFS to get rid of the 42 + 18 months type of contracts that we have in place right now (editor’s note - currently for off-balance accounting reasons, a 60 month contract, which is common in the Philippines, is split up between a first contract of 42 months, followed by and extension of 18 months; both contracts will have different pricings).”

Quincy concludes: “We’re also happy to see more automation and digitisation in the fleet industry. The new ETC (Electronic Toll Collection) system is much better than the previous one and cheaper to install. For corporate customers, this means a lot less expense notes to approve and pay out. The same is true for fuel: the fuel card systems are becoming much more mature and are well implemented”

 

Conclusion

On the South-East Asian maturity scale, the Philippines are amongst the top 4 countries, with Malaysia, Indonesia and Thailand (we exclude Singapore as a typical fleet country). Obviously, the level of maturity around the bigger cities is different from the one in the provinces, which is the case for all countries in the region. The biggest challenge, it seems, is the awareness of the local fleet manager & the local supplier about leasing and fleet management. There’s a need for educational efforts. To illustrate, Quincy gives us the example of a major local pharmaceutical company with which he had his first meeting 9 years ago. It took him until now to convert the company from insourced purchase to outsourced operational fleet management, but still in purchase. "It will take another long effort to convert this client to full service operating lease...", says Quincy.

 

Authored by: Yves Helven