CAR LEASING WITNESSES DOWNWARD TREND
Sep 14 - 20, 2009
Political and economic instability, increase in car prices, and high rates of auto financing badly hurt the business of car leasing in the country during the current calendar year.
United Bank Limited has already stopped the car financing while a number of other commercial banks have tightened regulations pertaining to consumer financing in general and car financing in particular.
Consumer financing suffered a decline due to tight regulatory regime enforced by the central bank as well as strict rules and regulations of commercial banks, sources in the banking industry told PAGE.
About five years ago, they said, commercial banks were liberal in consumer financing but experience they got was not so encouraging for them.
Due to high rate of default in car financing, the banks have adopted practically a "discouraging policy" vis-‡-vis car-financing scheme. Not only regulations have been tightened but also the banks are discouraging the same. Inordinate delay in clearing cases of car financing by the banks is badly hitting the car leasing.
A good number of leasing companies as well as Modarabas have also stopped car leasing due to poor return from the existing borrowers and increase in default rate.
Statistics show that car sales during first nine months of current fiscal has dropped by 49 percent year-on-year, as it stood at 61,185 units as compared to 120,246 units in the same period of the last year, with Pak Suzuki and Dewan Motor among the major losers as both witnessed sales decline by 52-percent and 76 percent, respectively.
A spokesman of the Pakistan Automotive Manufacturers Association (PAMA) said that cumulative auto sales (Cars + LCVs) recorded depressing numbers for this period as they stood at 73,668 units depicting a decline of 46 percent YoY.
Auto sales were up 15 percent MoM in March 2009 primarily on the back of low base effect from February 2009. Honda Atlas and Pak Suzuki were amongst the major gainers as their sales increased by 36 percent and 21 percent respectively.
Moreover, Dewan Motor also showed some improvement with sales up 26 percent MoM. However, Indus Motor failed to post positive growth as their sales declined by 2 percent.
After an impressive start in January 2009 where MoM sales were up by 95 percent, February 2009 auto sales slid by 18 percent MoM to 6200 units, but now in March 2009 the car sales increased by 14 percent to stand at 6,525 units.
Sales of automobiles have been falling for more than eighteen months now owing mainly to the increased rates of interest charged on loans. Besides, the 25 percent high inflation has pushed many potential buyers away.
In the period under review, Indus Motor captured significant market share at the expense of Pak Suzuki largely on account of their successful launch of new Corolla model during the period. Indus Motor's market share increased to 31 percent from 25 percent in June 2008 while Pak Suzuki's market share fell to 54 percent from 61 percent.
Similar to Indus Motor, launch of new Honda City helped Honda Atlas Car substantially increase its market share to 12-percent from 8-percent earlier.
Automobile manufacturing boomed when interest rates were low thanks to the increased liquidity available with Pakistani banks after the 9/11 attacks.
Banks and leasing companies were liberal in giving loans to individuals. Now, as the numbers of defaults are rising because of increased interest rates, they have tightened their policies.
Many banks have even stopped auto financing. There has been hardly any advertisement for car loans on televisions and newspapers for some time.
The sales of brand new and used cars have declined by around 90 percent in the last two months due to high prices and low availability of finance by the banks, the car dealers told PAGE.
According to them, the sales of new, used, and reconditioned vehicles have declined due to increasing prices. They said that recent increase by various automobile manufacturing companies have resulted in decline of sales of new cars while tightening of finance by the banks also affected the sales negatively.
The local automobile manufacturing companies have increased the prices almost 35 to 50 percent, which pushed up the prices of used and reconditioned vehicles as well.
November 2008 saw a massive fall in sales of Pak Suzuki, Dewan Motor and Honda Atlas by 41-percent, 53-percent and 58-percent on a month-on-month basis, respectively.
Decline in sales of Pak Suzuki can be attributed to increase in car prices by the company at the beginning of the month in range of Rs 30,000 to Rs 70,000. Moreover, no production by Dewan Motor was one of the reasons for decline in sales.
Car sales declined by 46-percent month-on-month and 54 percent year-on-year. Decline in car sales of Pak Suzuki was a major contributor to the decline, as industry unit car sales stood at 5,193 units versus 9,599 units in Oct 2008.
The main loser in market share in Jul-Nov 2008 has been Dewan Motor as its share fell from 5 percent in Jul-Nov 2007 to 2 percent. The main beneficiary of Dewan Motor loss has been Honda Atlas Cars as its market share increased from 8 percent to 10 percent.
Moreover, Pak Suzuki's market share increased by 150 BPS to 62 percent while Indus Motors market share fell by 83 BPS to 24 percent.
They said that sales of automobiles have been falling for more than one year now owing mainly to the increased rates of interest charged on loans. Banks and leasing companies were liberal in giving loans to individuals and stiff competition between them was going on to capture auto-financing business.
A spokesman of Leasing Association of Pakistan (LAP) told that last quarter of 2008 was affected by global economic turmoil unprecedented in the world history which no one could have predicted. Pakistan's gross domestic product (GDP) growth rate, after five years of respectable growth averaging 7%, dropped to 5.8% in financial year ended June 2008.
Highlighting performance of member companies, he said economic slow down resulted in new business volume dropping by 4% in financial year 2008 to Rs.33, 950 million from Rs.35, 532 million in the corresponding period last year.
Leasing volume was largely derived from asset based funding to small and medium size enterprises being distributed over plant and machinery, vehicles and equipment. Revenues increased by 12.50% from Rs.15, 028 million to Rs.16, 907 million. Increasing interest rate environment resulted in rise in financial charges, which were higher by 5.75% at Rs.8,954 million from Rs.8,467 million in the preceding year.
The profit in the year ended 30th June, 2008 was Rs.2, 094 million as compared to Rs.636 million in fiscal year June 2007. The profit for the previous fiscal year was understated on account of losses amounting to Rs.538 million reported by two companies, which have merged.
Cumulative assets increased to Rs.136,569 million in 2008 against assets of Rs. 128,315 million in 2007 showing a growth of 6%.
Investment in lease finance decreased marginally from Rs.72,908 million to Rs.71,597 million in 2008. The breakdown of finance lease asset portfolio was well diversified car and commercial vehicles being around 52.84%, followed by plant and machinery at 39.50% and computers and office equipment at 6.04%.