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Auto Industry

It is imperative to abolish the smuggling of vehicles as well as components and parts

By Syed M. Aslam
May 21 - Jun 03, 2001

Pakistani automobile industry is in transition, thanks to the increasing competition, particularly in the small car and generally in medium car segment, and the emergence of leasing companies becoming extremely active during last year, particularly in recent months.

Potential car buyers in Pakistan today not only enjoy a better choice in term of brands and models but also in term of car leasing options aimed at meeting personal budgets. The car leasing companies have seem to become more accommodating in the recent months by slashing the down-payment to an affordable level, extending installment payment period, abolishing the processing fee as well as simplifying the overall procedures.

It would be safe to say that without the leasing companies the local car producers would still be stuck with larger quantity of their products as sources say that car leasing contribute up to 40 per cent of all car sales in the country today. That also explains the reason for the four car producers Indus Motor, the producer of Toyota and Daihatsu Cuore cars; Pak Suzuki Motors; Honda Atlas Cars; and Dewan Farooque, the producer of Kia Classic and Santro have made specific arrangement with at least one leasing company.

Despite the persistent collective under-utilisation of car production capacity Suzuki reported utilisation of just 31 per cent of its plant capacity for the half-year ended December 31, 2000 due primarily to 'depressed market demand' while Indus operated its production capacity on single-shift basis in 1999-2000 the things are warming up for Indus and Honda at least.

For the half year ended December 31, 2000, both the Indus and Honda registered healthy financial growth. Indus' net sales depicted a healthy increase of 21 per cent to Rs 4.1 billion over the comparative period the previous year while it bettered its operating profit by over 29 per cent to Rs 143 million. The pre-tax and net profit each increased by 17 per cent to Rs 120 million and Rs 74 million respectively.

Similarly Honda's sales registered a drastic increase of 53 per cent to almost Rs 2 billion for the half-year ended December 31, 2000. The operating profit rose by 31 per cent to Rs 140 million, pre-tax profit by 35 per cent to Rs 152 million and post-tax profit by 35 per cent to Rs 100 million.

The financial performance of Suzuki during the half-year under discussion depicted an overall slump. Its sales declined by 8 per cent to Rs 3.4 billion in term of value and 22 per cent from 11,058 units to 8,640 units in term of quantity. Suzuki also produced just 7,676 units during the half-year ended December 31, 2000 3,055 units less produced during the comparative period the previous year. A 55 per cent decline in gross profit resulted in an operating loss of Rs 53 million and after-tax loss of Rs 117 million.

Suzuki attributed the bad financial performance on the 'new competition.' Suzuki has long enjoyed a virtual monopoly on the small car segment of the local market ever since it started its operations some eighteen years ago. Over the years Suzuki has created a market niche as the most used and recognised car on the domestic roads. The tough competition from Daihatsu Cuore 850 cc and Kia Santro 1000 cc cars has resulted in the launching of Suzuki Alto 1000 cc car and a 'new-look' Mehran 800 cc in January this year to help recover the market share. Kia is also producing Kia Classic 1300 cc car to compete in the market which thus far comprised only two players Honda and Toyota.

PAGE foresees that the local car assemblers would be fighting for the share of the market not at their dealer network but rather through the leasing companies. Advertisements splashed across full and half pages of leading dailies hint at the heating up of the car leasing operations in the months to come.

It is imperative to beef up fiscal and administrative measures to abolish the smuggling of vehicles as well as components and parts, disguised as 'used parts', to encourage fresh as well as increased investment in the auto industry. Without the due protection the auto vending industry which comprises some 750 units of all sizes, employ half a million people (100,000 directly and another 400,000 indirectly) and has an investment portfolio of Rs 20 billion would hardly be expected to play its due role in the national economy.

In a market where the purchasing power is on the decline leaving little cash in the pockets of even the middle-income segment, car leasing makes all the sense for the majority of populace which today can only dream of buying a new car on installments at affordable down-payment. After all, car purchase globally is the second top investment after house purchase.

The time has come to turn for the transformation of car market from that of sellers' to buyers' for the benefit of people but also the producers which have realised that without improving the quality of their respective products, and helping hand from leasing companies, they would not be able to develop the much needed economies of scale.