AUTOMOBILE 
PASSENGER CAR SALES ON THE INCREASE

Nevertheless the vital role auto leasing is playing to help give boost to the local car industry can hardly be denied

By Syed M. Aslam
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.

LEASING

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.

IN CLOSING

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.