TIME HAS COME TO CHECK IMPORT OF CARS

LOCAL AUTO INDUSTRY IS CAPABLE TO MEET THE DEMAND

AMANULLAH BASHAR
Jan 14 - 20, 2008

Indus Motor Company has increased the price of the Daihatsu Cuore by Rs10,000 effective 8th Jan 2008. One of the valid reasons for increase in Cuore price is increasing cost of input, variation in currency exchange rate as well as increasing cost of financing owing to higher interest rates. The growing price of electricity and other locally produced accessories and material were the other factors.

However, the principle of demand and supply also works behind the price mechanism. Since Cuore is capturing the market in its segment at a much faster rate the manufacturers might have also considered this factor as well, otherwise the price of other makes in this category may also go up sooner or later.

The 2.0-2.6% increase in price across all variants of the Cuore will have a positive impact, and the fall-out of demand due to the change in price will be negligible due to the dearth of alternative options available to consumers in the high-end 800cc segment.

It may be mentioned that the Cuore comprises 25.4% of the company's volumetric sales while contributing 12.8 % to top-line revenues.

Indus Motor probably is the only automobile company weathering the disturbed and depressed market conditions in the country, as it is currently engaged in discussions with the parent company, Toyota Motor Corp (TMC), for approval of plans to set-up a new plant in Pakistan. The new plant is likely to come online by Financial Year 2012 at a total cost of Rs5 billion over two years provided the parent company gives a green signal.

However, sources believe that the go-ahead from TMC would be positive, allowing Indus Motor to diversify into other categories, specifically the 1000cc segment.

FINANCIAL CHARGES

The auto industry after witnessing a remarkable demand growth has fallen prey to the higher financial charges of the banks and leasing companies, which led to a noticeable decline in demand as well as increasing default in car financing in the country.

Auto financing rates, which have steadily risen from 7.5% in 2004 to 15% currently, have put visible pressure on auto demand for all automobile companies. As a result of higher financial charges the number of defaults in bank financing is visible from the fact that the warehouses of different banks engaged in car financing witnessing a crowd of impounded vehicles by the recovery staff for non-payments of the dues.

Automobile industry in Pakistan has registered a stellar growth during last four-five years, which had also put a spark in the vendor industry to contribute significantly in the economic growth of the country besides creating job openings at a massive scale. To keep on this growth momentum stable law and order conditions and continuation of policies are of vital importance. It is the time to take remedial steps to take radical steps in the larger interest of the economy and to reassure the auto industry, which is currently in the process of expansions plants to enhance production. The import of cars unabatedly flooded the local market.

The import of reconditioned cars in no way supports the domestic economy while it also drains out the hard earned foreign exchange. In fact, the import of cars was allowed by the previous government to address delayed deliveries and higher premium. The demand situation has calm down on one hand while the increase in production capacity has also enabled the local industry to meet the demand. Hence a check on import is strongly recommended without any further delay.

Even the government's recent initiative to put a 3-year cap on imported vehicles has done little to revive dwindling demand for locally manufactured cars. With inflation far from under control, there is little possibility of interest rates being revised downward in the short-to-medium term, if it happens; the auto sales may rise by 5% Year on Year (YoY) basis in financial year 2008 vs. 9% YoY in FY07.

The auto sales figures for the month of November, for the top four local automobile manufacturers, witnessed a drop of 14.6% YoY. The total sales in five months of the financial year 2008 are now flat YoY at 77,612 units, including both cars and Light Commercial Vehicles (LCV).

Pak Suzuki, however, was the only local assembler with positive YoY growth in sales July to date and remained the market leader with 61% market share while the sales for Indus Motor were flat while sales for Honda Atlas and Deewan Farooque continued their declining trend with a 15.4% and 16% drop YoY.

Actually, the sales for Pak Suzuki in five months of the current financial were up by 4.2% YoY and managed to stay above par due to its diversified portfolio, even as other assemblers showed signs of a slowdown.

The company has benefited from a 10.3% YoY jump in sales for 1000cc vehicles, where it controls 93% market share. In addition, sales for the Bolan and Ravi, up 40% and 27% YoY respectively have led the demand for LCV's during ongoing fiscal year.

Even though Indus Motor reported weak sales for the period under review (Jul to date), November was a landmark month for the company with the re-launch of the new Hilux. A total of 174 new Hilux were sold during the month vs. our full year estimate of 1,200 units. The sales figures for Indus Motor are expected to pick up during the course of the year with the re-launch of the Hilux and already there are good signs with 16.4% MoM growth.