HIGHER INTEREST RATES
AUTO INDUSTRY SUFFERED FIRST DROP IN VOLUME IN 7 YEARS
Feb 25 - Mar 02, 2008
The domestic automobile industry, which has shown impressive growth rates for the last several years recorded its first half year drop in volume since 2001, primarily due to the uncertainty emanating from the political environment as well as higher financial charges on the back of increasing interest rates.
Pak Suzuki, the top auto player has reduced prices of certain makes including Alto, Mehran and Liana due to drop in sales as well as the cushion available following the postponement of the levy of 2.5 percent withholding tax.
However the demand and supply principle also rules the price factor which was exactly happened in case of various products of Indus Motors which has increased prices on the plea of increasing dollar parity against rupee.
One of the leading cars leasing entity told Pakistan & Gulf Economist that the leasing cost has been slightly increased by 0.5 percent following the increase in discount rates of the bank. He however asserted that increase in interest rates should be taken in isolation for drop in sales volumes of the auto sector because there were other factors as well having their impact on over all economic activities especially the election related political activities and of course law and order situation also depressed the market for the last three four months.
Currently, the leasing companies are offering 16.5-17.5 percent interest rates on car leasing while the average rates of car financing in the banking sector varies from 13.5 percent to 15.5 depending upon the balance sheet of the clients. The prices of Honda cars were however unchanged in accordance with their market strategy.
With the near term outlook expected to remain challenging, given the tightening of the monetary policy, it is essential that the new Government takes proactive measures to boost the auto sector, which remains a major contributor to the national exchequer.
Nation-wide sales of locally assembled passenger cars, light commercial vehicles (LCV), new and used cars was 99,681 units, down 9% compared to 110,085 units sold during the Half Year, ended 31 December 2006.
The unsatisfactory law and order situation, tightening of auto finance and imposition of 2.5% withholding tax effective September 2007 contributed towards the decline in the second quarter. Total industry production of CKD cars and LCV at 94,300 units was nearly the same in the corresponding period last year.
The Board of Directors of Indus Motor Company Ltd, in a meeting held at IMC's manufacturing plant at Port Qasim, reviewed the company's financial and operating performance for the half year ended 31 December 2007.
During the half year, production of Indus Motor's Toyota and Daihatsu brands was 22,824 units, a new record for the Company, as compared to 22,489 units produced during the same period in 2006. Sales of Toyota and Daihatsu products for the six months ended December 2007 were 23,138 units, down 3% from the 23,905 units achieved in the same period the previous year. However, despite a declining market, Indus was able to increase its overall market share of passenger cars and light commercial vehicles to 23%, up from the previous year's 22%. The new generation of Toyota Hilux was also launched in November 2007 and witnessed strong demand during this period.
IMC's total sales revenue for the Half Year, at Rs 18.7 billion, and Profit after Tax of Rs 1.4 billion, are new Company records. The Board of Directors has declared an interim dividend @ 40% or Rs 4.00 per share for the half year ended December 2007, versus Rs 5.00 per share paid for the same period last year.
According to Pakistan Automotive Manufacturers Association (PAMA) car sales data for the month of January 2008 revealed that sales of locally manufactured vehicles during seven months of financial year 2008recorded at 81,546 that is down 7% from the same period last year.
However, on M-o-M basis all the companies showed recovery with overall car sales depicting 62% increase to 11,588 units as against 7,143 units previously. It is pertinent to mention that almost 28% due to Holidays on one account or the other reduced the working days in Dec-2007 and riots in the wake of Bhutto's assassination.
PSMC and Indus Motor were the two companies that showed minor declines in their volumetric sales at 4% and 7%, respectively. On the other hand, Dewan and Honda Cars witnessed 31% and 19% respective double digit declines in their sales volumes. Sales of 1000cc and 1300cc & above segment depicted a decline of 7% and 14%, respectively, whereas 800cc depicted a minor growth of 1% during the period under review.
The trade and industry however attaching high hopes that with the installation of the new government in the wake of recently concluded elections, the new economic managers would have to look for downward revision of the interest rates to add a spark to the micro economic regime which is relatively presenting a depressed view for quite sometimes.
The business community has a strong plea that increasing financing charges are only benefiting the banking sector while the focus of the central bank to control mounting inflation has not shown visible results so far. Hence there were strong expectations for downward revision of the interest rates in the next quarter of the financial year.