Nevertheless the vital
role auto leasing is playing to help give boost to the local car
industry can hardly be denied
By Syed M.
May 20 -June 02, 2002
The first half of the fiscal ended December 31,
2001 show increased profitability for the local car producers. The
trend continued during the first quarter this year and the
manufacturers are expected to better their profitability when the
fiscal comes to a close in June.
However, the performance of the car manufacturers
does not represent the performance of the auto industry as a whole as
during the nine months ended March 31 the production of trucks,
tractors and bus registered a substantial decline. The local car
industry, however, was not only able to absorb the post-September, 11
shock unlike many other industries and sectors of the economy but was
also managed to better its performance.
For instance, the producer of a range of Korean Kia
cars and Hyundai light commercial vehicles, Dewan Farooque Motors,
sold 25 per cent or 789 units during the first six months ended
December 31, 2001. It sold 4,057 units compared to 3,268 units during
the comparative period in the previous year.
The sales revenue of Honda Atlas, the local
producer of Honda cars, registered an increase of 52.4 per cent during
the half year ended December 31, 2001 rose by 52.4 per cent over the
corresponding period in the previous year. The company produced and
sold 32.9 per cent and 38.3 per cent more cars respectively during the
period under review while its operating profit increased by 47 per
cent, pre-tax profit increased by 46 per cent and after-tax profit
increased by 45 per cent.
However, despite a strong performance of the rupee
since the last quarter of 2001 eroding the parity by a big 10.5 per
cent the prices of all locally assembled cars have failed to pass off
any benefits to the buyers. This has elicited a loud protest from
various quarters as car producers never seem to waste even a day to
announce an increase in case of devaluation of the local currency.
In addition, the government has also reportedly
asked the car producers to increase the production, which, in recent
months has resulted in sales of cars at a premium way above the actual
price for immediate delivery. Sources told PAGE that low
production is not only discouraging the economies of scale in the auto
industry but is also resulting in extreme delays in deliveries of cars
to the customers who have to pay for the advance booking in cash.
Sources told PAGE that the low production
volume has also provided an opportunity to the unscrupulous elements
to charge additional t money on top of the ex-factory prices if one
prefers an immediate delivery on cash. While thousands of customers
who have booked the cars keep on waiting for the delivery those with
cash can drive the car of their choice from the show rooms provided
they are ready to pay that extra money which runs anywhere from Rs
35,000 to Rs 300,000 depending upon the model.
While the car producers do not give an exact
delivery schedule to those who have booked the cars they have not
forgotten to protect their interests through a clause. The clause says
that the customers would have to pay the price applicable at the time
of delivery and not at the time of booking.
During last couple of years auto leasing has played
a vital role to help boost to car sales. As much as over one-third of
all new car sales today are financed by all major banks plus over
dozen of leasing companies. The competition for the auto leasing has
become very aggressive in last two years and is still going on strong.
However, the compound mark-up rates still remain much too high —
over 40 per cent depending on the payment period — and thus
uneconomical for all practical purposes.
Nevertheless the vital role auto leasing is playing
to help give boost to the local car industry can hardly be denied.
However, its failure to get mainstream can be blamed on the
unaffordable high interest rates thus shying away a large number of
potential buyers who otherwise are much interested to buy a car.
Another discouraging factor is the high incidence
of auto thefts in Karachi, the single biggest market of automobiles
the country. Auto thefts and snatchings have become a daily routine
and since 1997 over 25,000 cars have been either stolen or snatched in
the city, over 45 per cent of which still remain un-traced. The menace
in the biggest city is also discouraging car sales as a large number
of prospective car buyers who can afford to buy new cars prefer
instead to buy used cars so as not to draw the unscrupulous attention.
Under utilization of the production capacity seems
to be the top problem of the local auto industry, particularly car.
Low production is not only resulting in absence of the economies of
scale but also in rampant unethical practices of black-marketing and
excessive wait for the delivery of cars booked by the producers. On
the other hand, while aggressive auto financing by banks and leasing
companies have helped the industry to better its sales, the high
mark-up rates still shy away a large number of potential buyers. The
law and order situation also affects the auto sales negatively. All of
these issues need prompt and effective measures without which auto
sales will remain restricted in a country which houses a huge
population of over 140 million.