PAKISTAN'S AUTOMOBILE INDUSTRY IN RETROSPECTION

SHAMSUL GHANI
Sep 14 - 20, 2009

With an average GDP growth of 7.5 per cent the automobile industry touched its boom during 2004-08 in Pakistan. It flourished in the era of low bank rate and uninhibited consumer financing. The then economic managers envisaged production of 500,000 cars and one million motorcycles by 2011.

Following a sharp rise in demand for cars, the vendors and auto assemblers increased their investment in the auto industry thereby increasing the aggregate capacity from 97,000 units in 2002 to 223,000 units in 2006. The operations were also jacked up from single to double shift to meet the demand.

The honeymoon for the auto industry, anyway, expanded to a reasonably long period. There hardly seemed any end to that period, when some unexpected changes in the scenario took the industry by surprise. The external factors and internal opportunism combined to topple a stable government. It was more our internal mismanagement than the effects of financial global meltdown that delivered a severe blow to our economy.

Every thing went topsy-turvy and so did the auto industry. In a frenzy to reverse all previous government policies, the bank rate was raised up to such a height that rattled the entire economy. The high lending rate gave rise to defaults and the booming banking sector entrapped in an avalanche of non-performing loans. The bubble of consumer financing burst with a bang, making the banking sector overcautious about the quality of their assets. The auto boom that was generated to a great extent by the bank credit vanished into thin air. There was no money around. Liquidity crunch was the talk of the town. The car sales dropped dramatically registering a drop of 54 per cent in FY-09 in comparison to FY-07.

Auto industry everywhere suffered a setback in the wake of global financial meltdown. The world market players managed the situation with cut-price offers. In our case, the auto prices went still up as in our feudal system lowering of prices is a taboo (remember the ongoing sugar and flour prices scam).

AUTO SALES (IN NUMBERS)

VEHICLE 2005-06 2006-07 2007-08 2008-09
Cars 165965 180834 164650 82844
Trucks 4273 4293 5350 3136
Buses 927 978 1195 686
Jeeps 2520 3397 1448 1066
Pickups & LCVs 18951 19981 21314 15400
Farm Tractors 48802 54052 53203 60351
M/Cycles & 3-Whlrs 516640 467353 643317 493895
Source PAMA

After the democratic frenzy was over, sanity started to prevail. Two bank-rate cuts by the monitory policy makers have silenced the industry and business circles a bit, yet the rate is still too high when seen in comparison to the other economies of the region. It will take a long before the damage to the economy and the industry caused by a high policy rate alone, is repaired. The recently released State Bank data shows that all segments of consumer financing have taken a dip during the FY-09.

Badly hit was the auto financing segment that recorded a drop of Rs.26 billion (down from Rs.104 billion in June, 2008 to Rs.78 billion in June, 2009).

PRODUCTION & SALES POSITION

VEHICLES   JUL08 DEC08 JAN09 FEB09 MAR09 APR09 MAY09 JUN09 JULY09 JUL08- JUL09
Cars1300 cc/ more Prod 1942 2055 3310 3466 4167 4152 3861 3842 4113 39478
Sales 1382 1561 3602 3700 4310 4350 3841 3991 4351 38755
1000 cc Prod 2111 917 419 802 925 1121 679 1310 1605 16149
Sales 1105 365 1476 640 705 886 1295 1469 1555 16152
800 cc & more Prod 4654 1562 1293 1465 1696 1881 2104 2085 3015 28681
Sales 3182 763 1836 1434 1510 1728 2008 2091 2654 27937
Total Cars Prod 8707 4534 5022 5733 6788 7154 6644 7237 8733 84308
Sales 5669 2689 6914 5774 6525 6964 7144 7551 8560 82844
Trucks Prod 492 205 140 169 301 300 297 369 266 3135
Sales 347 210 271 265 247 242 304 415 278 3136
Buses Prod 108 12 24 49 41 81 84 89 84 662
Sales 52 23 55 35 68 71 68 96 60 686
Jeeps Prod 182 5 8 72 30 72 67 82 129 932
Sales 211 - 86 64 51 68 44 172 71 1066
Pick Ups Prod 1909 1432 867 742 705 1038 631 836 1202 16160
Sales 1538 1190 573 355 414 964 1114 1379 1265 15400
Farm Tractors Prod 3881 5490 4831 4523 5593 6157 5710 6440 4903 59968
Sales 3525 6051 4697 3844 6294 6531 5901 6784 4433 60351
M/Cycles & 3 Whls Prod 47109 31993 36474 34955 35745 45414 50146 49913 54516 493592
Sales 46105 32348 36562 35129 36275 45740 49891 50120 53666 493895
Source PAMA

The two tables showing historic and monthly auto sales data reveal a number of our economic and social aspects. While total car sales recorded a maximum fall of 54 per cent, luxury car sales recorded a maximum fall of 36 per cent. Cars in the range of 800 to 1000 cc (normally used by the middle class) maintained an uptick after initially going down. The most redeeming aspect is that the sales of farm tractors and pickups, used in agricultural and commercial activities, did not contract. Particularly, the sales of farm tractors showed an up trend in adverse circumstances indicating an increase in farm activities and expansion in farm credit. Motor cycle and three-wheeler sales resisted any major downfall showing that the common person has decided to come out of the clutches of the bus and wagon mafia. From auto manufacturers' standpoint, they chose to play safe by cutting down their production. By doing so, they not only obviated the need to avail expensive bank credit, but also avoided high cost of piled-up inventories.