AUTO INDUSTRY MUST REMAIN IN GEAR
All economic indicators hint towards continued growth
SHABBIR KAZMI, Special Correspondent
Mar 19 - 25, 2007
Automobile sales for the first eight months of current financial year tell very interesting story. Total number of units sold was 101,664 units against 95,161 units during the corresponding period last year - a growth of 6.8%. However, sale of 1300cc vehicles and above declined from 41,605 to 38,423 units, a decline of 7.6%. As against this, sale of 1000cc vehicles went up from 26,092 to 32,182 units, a growth of 23.3%. Sale of 800cc vehicles grew by 13.1% to 31,403 from 27,464 units.
Overall, auto sales have risen by only 8.7% YTD as compared to the initial full year forecast of 15%. Even though sales for Pak Suzuki and Indus Motors continue to remain robust, increasing by 28% and 20%, respectively. The slower than expected rise in auto sales can be traced to the 41% decline in the sales of Honda Atlas and Dewan Farooque. Even though sales are expected to pick up in the coming months analysts tend to cut full year sales forecast to 13%.
Prices of imported CBUs, mostly secondhand, have come down but buyers seem to have preference for the locally assembled cars. The reason being that maintaining a locally assembled vehicle is much easier than the imported one. Thousands of imported CBUs are waiting for the buyers. The imported buses have become a serious problem for the local assemblers as well as for the importers. As against an annual demand of 3,000 units more than 6,000 units have been imported.
Financial institutions providing auto financing and insurance companies have benefited the most from the boom in car sales. In fact auto financing has been the real catalyst and OEMs have been the beneficiaries. Rising sales have enabled them to increase production capacity. Pak Suzuki can rightly take the pride of being the producer of largest number of vehicles as well as having the most diversified product range. Its 800cc and 1,000cc cars, also fitted with CNG kits, have been attracting the customers most.
Many analysts talk the most about assemblers but often ignore the real driving engine of the engineering industry - manufacturers of parts and accessories. They had met the demand when assemblers were producing less than 50,000 cars. They are meeting the current demand for assembling over 100,000 cars. They are showing commitment to meet demand for parts and accessories for assembling 500,000 units annually.
The most unsung soldiers are the assemblers of tractors. It is on record that two decades ago sale of tractors was entirely dependent on the payment by Agriculture Development Bank of Pakistan. Now the situation is that not only assemblers deserve to be called manufacturers but also becoming very competitive. They have developed such a strong brand locally that now farmers are least interested in foreign assembled tractors.
At present there are about 50 assemblers of motorcycles operating in the country. The biggest contribution of the new entrants is that motorcycle prices have come down significantly, down by 30-50 percent. Availability of motorcycle leasing/financing has pushed the annual sales to new highs. According to the assemblers bulk of the demand now originates from rural areas, because of motorcycles being affordable to the low-income groups.
In order to meet the fast growing demand the three major producers of motorcycles have expanded their capacity. The total installed capacity is now estimated above one million motorcycles per annum. However, it is a little difficult to quantify production. According to an analyst bulk of the demand is still met by Honda, Suzuki and Yamaha brands because new entrants have yet to prove their dependability.
The assemblers of buses and trucks and the manufacturers of parts and accessories for buses and trucks are worst hit. According to a parts manufacturer the annual demand for buses and trucks is around 3000 but importers have imported about 6000 units. Most of the units are being rusting while kept in the open and local assemblers are finding it difficult to sell their indigenous production. It is on record that in the past local assembler of Hino was exporting completely built buses.
It is also necessary to point that the country in general and Karachi in particular has the most pathetic public transport system. One of the reasons is the virtual absence of financing facility for the transport sector. An effort was made during Nawaz Sharif's regime and another in Karachi recently. However, both these schemes virtually failed because of a number of reasons, including large default by borrowers and banks' failure in providing comprehensive insurance to facilitate prompt payment of claims.
Car sales have remained robust because of leasing/auto financing and sale of buses and trucks, used in public transport, has remained low due to the absence of such a facility. Local car assemblers are adding new capacities, therefore, their profitability would remain dependent on capacity utilization.
Since most of the cars are being sold under lease/auto finance, interest rate movement would also determine the direction of the market. Most of the analysts are of the opinion that interest rates may decline marginally in the near term. This view is supported by the recent auction of Treasury Bills.
In the most recent auction State Bank of Pakistan increased 12-month T-Bill yields by 0.019% to 9.0165% and mopped up Rs 27.05 billion against a pre-auction target of Rs 16 billion. Bid pattern was clearly in favor of 12 month T-bill, with no participation witnessed in 3 and 6 months T-Bills, suggesting easing of the monetary policy stance.
However, some of the analysts are of the view that whatever may be the direction of interest rate movement the locally assembled auto sales would remain robust - also because financial institutions do not lease or offer auto-financing facility on secondhand imported cars.
According to the vendor industry slowly but surely the new auto policy will reduce Pakistan's automobile industry to assembly operation. The overwhelming perception is that in future all the auto parts will be imported because of repeated deviations from the announced policy in the past. If the government is sincere in promoting the automobile industry it has to implement the auto policy in letter and sprit, as this policy has been approved by all the stakeholders.