How Much Money Do PMVICs Make According to the DOTr?

With President Duterte now saying that motor vehicle inspections or MVIS no longer mandatory, it’s a clear sign that the government is now trying to wash their hands off this mess.

As reported by ABS-CBN News, presidential spokesman Harry Roque said, “Hindi na po mandatory ang MVIS. Ibig sabihin, kinakailangan wala pong bagong singil, walang karagdagang singil sa pagpaparehistro ng mga sasakyan.”

(MVIS is no longer necessary. This means there should be no new or additional fees for the registration of vehicles.)

Assuming that every word of this statement is true, let’s read between the lines, shall we?

This doesn’t mean the absolute suspension of the PMVICs per se. It just means that the LTO can’t charge motorists anything on top of the current registration fees.

Malacanang’s statement is somewhat hand-in-hand with DOTr Art Tugade’s own statement where he asked the PMVICs to lower their inspection fees, and even suspend the collection of re-inspection fees for at least one year.

So how will this affect PMVICs? Let’s take a look.

According to this Facebook post by VISOR, in the original, and in the DOTr’s own words, optimistic scenario, a PMVIC will see a five-year revenue of P 318 million (P 63.6 million annually).

How did the DOTr come up with this? They put in some assumptions.

PMVIC investment model comes with a one-time capital expenditure of P 42.5 million (including capex debt repayment). They also assume that each test is at P 1,800 per test for light vehicles and P 600 per test for motorcycles. Assuming two lanes each, they said 180 tests per day can be done in ten hours.

According to DOTr computations, these PMVICs will earn a monthly revenue of P 5.3 million (P 63.6 million annually), while its operating expense is at P 1.94 million (P 23.280 million annually). Operating margin? 63 percent. Running the numbers, the payback period is just one year and one month with an Internal Rate of Return of 91.15 percent (the DOTr actually says its 100.12 percent). It’s rare to see any business see these kinds of returns.

But, what if the PMVIC were to reduce their cost of inspections to just P 650—the figure commonly seen at emission testing centers, and a figure proposed by the DOTr?

This is where things get interesting.

From a monthly operating revenue of P 5.3 million, it drops to P 2.87 million (P 34.45 million annually). Now, assuming that monthly operating expenses remain the same at P 1.94 million, they’ll still be seeing an operating income margin of 32 percent. Payback period will take longer at 3 years and 10 months, but it’s still within the PMVIC license of five years with an Internal Rate of Return (IRR) of 9.86 percent—now in line with typical businesses.

If the LTO’s figures are correct, PMVICs cannot use the defense of “kulang ang kinikita namin” even at lower rates. In fact, even if testing fees were to be reduced to P 600, these PMVICs will breakeven within their 5-year license. Anything below that though, and they won’t be able to recoup their investment.

Of course, these scenarios are very optimistic. For example, the DOTr says 180 vehicles can be tested per day—that’s 18 units per hour, or about 5 units tested per lane per hour. Now, let’s assume they can only do two tests per lane per hour (80 tests per day or 1,600 per month)—it brings down a PMVIC’s operating revenue to just P 1.920 million per month. Assuming that operating expense stays the same at P 1.940 million per month, they will never make money. PMVICs will need to test at least 1,650 vehicles per month or around 83 vehicles per day at the rate of P 1,200 per vehicle to make money.