AUTOMOBILE SECTOR - IN THE THROES OF UNFORESEEN CORRECTION

SHAMSUL GHANI (shams_ghani@hotmail.com)
Oct 20 - 26, 2008

The automobile industry of Pakistan, after registering phenomenal growth till June 2008, finds itself in a shell-shocked condition due mainly to a number of reasons, the foremost being the unwarranted intervention from the political front. The velocity attained by the economy demanded a sustained supply of fuel in the shape of enhanced investment and rising consumption. The political turmoil dried up the sources of investment while the inflationary pressure reduced disposable incomes thereby minimizing consumption to necessity level. We were producing around 30,000 units of cars till 1995. This number rose to 160,000 plus by the mid of 2008. The following table outlines the growth pattern of auto industry.

VEHICLE

NOS. PRODUCED
YEAR 2005-06

NOS. PRODUCED
YEAR 2006-07

NOS. PRODUCED
YEAR 2007-08

Cars, Jeeps & LCVs

153,248

161,195

187,644

Motor Cycles

603,084

681,752

641,031

Tractors

39,745

44,274

53,256

Trucks

3,746

3,655

4,993

Buses

625

758

1,143

The worsening law and order situation, the foreign and domestic liquidity crunch, the high consumer finance default ratio, the killing food and general inflation and the freefall of Pak rupee, all have combined together to produce a big dent in car sales business. The banks already bitten by liquidity squeeze and expanding NPL portfolio have put their foot down on car finance. The cash starved middle class is no more in a position to contract scarcely available car loans and that too at an exorbitant price of 25 per cent. Such is the state of our yesteryears' "booming" auto industry. With Rs.100 billion investment in the car manufacturing during the boom period 2003-06, the auto makers earned huge profits by expanding capacities in the wake of rising demand triggered by easily available consumer finance. It was prophesied that the auto making industry still had many milestones to reach and plans were put on anvil to invest further Rs.225 billion in the industry to churn out 500,000 units by 2010-11. These plans, however, have been put on hold. Perhaps we have been allowed time by the prevailing circumstances to rethink and rationalize our approach. Auto industry has potential; it needs to be developed in line with our economic priorities. We need to develop a proper infrastructure that is good roads, modern railway tracks, highways etc. coupled with an efficiently run mass transit system to afford a cheaper mode of transport to the masses on one hand and to economize on country's energy consumption on the other.

DWINDLING CAR SALES BUSINESS

The following table presents a view of production and sales pattern marking the calendar year 2008.

AUTO PRODUCTION & SALES DATA

.

2007-08

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

1300 cc & more

Prod.

50310

2818

3999

3994

4016

4330

4709

1942

1797

Sales

50824

4038

4110

4405

4261

4146

5273

1382

1517

1000 cc

Prod.

48495

2252

3630

4310

4765

4796

3148

2111

2731

Sales

48887

3567

3723

4939

4839

3949

5327

1105

2144

Below 1000 cc

Prod.

65905

5597

5630

5556

6639

6317

4032

4654

3642

Sales

64939

5086

5538

6081

6154

5932

4523

3182

3986

TOTAL CARS

Prod.

164710

10667

13259

13860

15420

15443

11889

8707

8170

Sales

164650

12691

13371

15425

15254

14027

15123

5669

7647

Trucks

Prod.

4993

492

501

488

468

585

623

287

243

Sales

5350

549

511

594

523

558

609

347

66

Buses

Prod.

1143

119

85

92

110

109

86

108

60

Sales

1195

94

81

111

90

124

129

52

66

LCVs & Jeeps

Prod.

1590

203

127

186

112

131

198

182

119

Sales

1448

99

172

198

190

111

209

211

125

Pick Ups

Prod.

21344

1781

2052

1857

2163

1801

1728

1909

2174

Sales

21314

1852

1921

1909

1815

1845

2251

1538

1932

Tractors

Prod.

53256

4322

3846

4201

5298

5083

5649

3881

4033

Sales

53203

4279

3881

4006

4961

4747

6399

3525

4607

Motorcycles &-3 Wheelers

Prod.

641031

56616

57637

58249

58410

61120

47452

47109

41538

Sales

643317

56556

56782

58062

58014

61769

49243

46105

41357

The sale of cars kept on rising during the first half of calendar year 2008 when units sold increased from 12,691 in January 2008 to 15,123 in June 2008. The first quarter of financial year 2008-09 witnessed a steep decline in car sales when only 19,066 units were sold as compared to 39,297 units in the corresponding quarter of FY08 - a drop of 51 per cent. When compared to the preceding quarter (April-June 2008), the drop in sales calculates to 57 per cent. This situation is suggestive of car industry going through the pangs of unforeseen correction. The sales of trucks and buses also dropped sharply during July and August 2008, spelling a further aggravation of transport problems. The only redeeming aspect is that the sale of tractors, after dropping from 6399 units in June-08 to 3525 units in July-08, has again picked up to 4607 units in August-08. Motor cycle sales, after touching the peak in May-08, has dropped by 20,412 units in August-08. The obvious reasons are the contraction of middle and lower middle class disposable incomes and rising motor cycle prices in the wake of rupee slide.