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An increase in the auto sales is seen as the major indicator of a strong economy and an overall prosperity

By Syed M. Aslam
Feb-25 - Mar- 10, 2002

The economic slump which extracted, and still keeps on extracting, a heavy toll on the national economies and industries across the world in the aftermath of September 11, failed to make any impact on the Pakistani auto industry. If the half-yearly result of one of the major high-priced car producer, Honda Atlas, is any indication the Pakistani auto industry not only remained immune to the viral global slump but also better its overall profitability for the period ended December 21, 2001.

Honda Atlas' un-audited result show that during the period under review, which comprised full 110 post-September-11 days, treated it very well unlike almost all other sectors of the Pakistani economy, including manufacturing. In a world where every single economic, financial, trade, social, political and cultural event today has a single connotation the performance certainly needs a closer look, and translation.

According to review of Honda Atlas' chairman included in the six-monthly report "the performance of the economy remained under pressure following September 11 terrorist attacks and its impact on Pakistan caught in the whirlwind of economic difficulties." He also added that "this has not only disrupted the trading activity but also increased the cost of international trade due to rise in freight and war risk insurance charges."

What, however, remained unmentioned was the fact that despite a strong performance of rupee against the dollar the local car producers have not seen it fit to pass even a percentage of the benefit to prospective new car buyers. The local car producers who depend heavily on imported CKD (Completely Knock Down) kits and other precision parts and accessories, which collectively make up the biggest part of the retail prices, has remained conveniently silent to genuine public demand to reduce the car prices despite heavy erosion of the value of dollar against the local currency.

Half-yearly result shows that Honda Atlas' sales revenue recorded a growth of 52.4 per cent over the corresponding period in the year 2000. Similarly, the company produced and sold 32.9 per cent and 38.3 per cent more cars respectively during the period under review. The operating profit increased by 47 per cent, pre-tax profit by 46 per cent and after-tax profit by 45 per cent. Honda was able to better its overall profitability despite the fact that a 53 per cent increase in its 'cost of sales' was exactly equal to increase in sales revenue while 'administration and selling expenses' increased by 42 per cent.

In terms of figures, sales revenue increased from Rs 1.999 billion to Rs 3.046 billion, 'cost of sales' increased from Rs 1.782 billion to Rs 2.731 billion and 'administration and selling expenses' increased from Rs Rs 76 million to Rs 109 million. Similarly, operating profit increased from Rs 141 million to Rs 206 million, pre-tax profit increased from Rs 152 million to Rs 223 million while after-tax profit increased from Rs 99.5 million to Rs 144 million.

During the half-year ended December 31, 2001 Honda Atlas Cars produced 3,906 units, 966 more than 2,940 units it produced in the corresponding period in 2000. It also sold 1,042 more units- 3,764 units compared to 2,722 units in the corresponding period in the previous year.

So what does the surge in the sales volume and sales revenue indicate amidst an otherwise widespread slump in all other sectors of the economy, not only national but also global? An increase in the auto sales is seen as the major indicator of a strong economy and an overall prosperity anywhere in the world. Does this mean that September 11 has brought prosperity to Pakistan as indicated by a sharp increase in car sales as highlighted above? This can not be true if one look at reduction in the value of both imports and exports after that horrific day in September affecting all economic activities, lower revenue collection and investment, both foreign and local.

Ground realities just do not seem to justify this sudden surge in auto sales. This may also be taken as a sign that developments such as withdrawal of economic sanctions, comparatively greater access to markets for Pakistani exports, rescheduling of foreign debt and flow of aid, loans, grants and assistance may be creating a new class of nouveau-riche.

In the past, such unrestricted flow of aid, loans, grants and assistance turned many individuals rich over-night at the cost of the masses who did not benefit an iota from them yet are made to pay the incessantly increasing foreign and local debts by being taxed heavily, both directly and indirectly. Nothing is free in the world and the loans taken today would have to be paid tomorrow, even if the donors mercifully reschedule them for extending period of time- decade or even quarter of a century. It is imperative that this time around the over-night riches story would not be repeated for the greater benefit of the people.