AUTO INDUSTRY - DECLINING SALES PATTERN

SHAMSUL GHANI (shams_ghani@hotmail.com)
Mar 02 - 08, 2009

The automobile industry of Pakistan registered phenomenal growth until FY-08. The year recorded a total production of 888,067 units and sale of 890,477 units. The velocity attained by the economy demanded a sustained supply of fuel in the shape of enhanced investment and growing demand. The later developments, both on domestic and international fronts, pushed the industry to recessionary zone. The domestic political turmoil dried up the sources of investment while the global inflationary pressures reduced disposable incomes drastically thereby minimizing consumption to necessity level. The financial global meltdown created liquidity crisis the world over. Our banking sector, though showing lot of resilience, was infected anyway. The easy flow of consumer credit stopped abruptly. The policy rate hike pushed the consumer finance pricing to a level that was almost out of reach for the middle class that was instrumental in creating the auto boom. There is a general view that auto sales have dropped significantly during the first half of the current financial year. The following table outlines the production and sales pattern during the first seven months of FY-09.

AUTO PRODUCTION & SALES DATA
. 7-MON .
. FY-08 JUL-08 AUG-08 SEP-08 OCT-08 NOV-08 DEC-08 JAN-09 FY-09
1300 cc & above Prod. 50310 1942 1797 2909 4190 3787 2055 3310 19990
Sales 50824 1382 1517 2514 4357 3630 1561 3602 18563
1000 cc Prod. 48495 2111 2731 1686 2526 922 917 419 11312
Sales 48887 1105 2144 2495 2740 832 365 1476 11157
Below 1000 cc Prod. 65905 4654 3642 2502 3618 2170 1562 1293 19441
Sales 64939 3182 3986 3629 3782 1988 763 1836 19166
TOTAL CARS Prod. 164710 8707 8170 7097 10334 6879 4534 5022 50743
Sales 164650 5669 7647 8638 10879 6450 2689 6914 48886
Trucks Prod. 4993 492 243 258 206 155 205 140 1699
Sales 5350 347 287 199 162 187 210 271 1663
Buses Prod. 1143 108 60 30 54 30 12 24 318
Sales 1195 52 66 44 33 65 23 55 338
LCVs, & Jeeps Prod. 1590 182 119 137 92 66 5 8 609
Sales 1448 211 125 157 50 38 0 86 667
Pick Ups Prod. 21344 1909 2174 1898 2020 1908 1432 867 12208
Sales 21314 1538 1932 1242 2411 2188 1190 573 11074
Tractors Prod. 53256 3881 4033 4302 3799 5209 5490 4831 31545
Sales 53203 3525 4607 4171 3343 4603 6051 4697 30997
M. Cycles &-3W Prod. 641031 47109 41538 38577 43090 38638 31993 36474 277419
Sales 643317 46105 41357 38958 42623 38387 32748 36562 276740
TOTAL Prod. 888067 62388 56337 52299 59595 52885 43671 47366 374541
Sales 890477 57447 56021 53409 59501 51918 42911 49158 370365

The figures listed in the table show that car production and sales peaked in the month of October-08 when 10,334 units were produced and 10,879 units were sold. During December-08, production and sales came down to 4,534 units and 2,689 units respectively, recording fall of 54 per cent and 75 per cent respectively. The sales started to pick up in January-09 when 6,914 units were sold, recording an abrupt rise of 157 per cent in comparison to the last month. The fact that the production and sales of 1300cc and above cars have been on rise after July-08 substantiates the view that the middle class of the country created the boom. Even during December-08 when only 1128 units of 1000 c.c. and below cars were sold, the 1300 c.c. and above cars recorded sales of 2055 units. The buyers of 1300 c.c. and above cars belong to the affluent and elite classes for whom money is no problem. They are the ones who have encouraged our greedy manufacturers and dealers to raise the car prices at will. The government also seems to have colluded with them by discouraging import of used cars through policy measures. The low priced imported used cars were a source of relief to the low-income groups who somehow managed to own a small car for family use. The banks already bitten by the 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.

During the prevailing difficult situations, both developed and developing countries have offered incentives to boost auto sales. Indian manufacturers are offering substantial discounts ranging from Rs.50,000 to Rs.100,000 per vehicle. We are the only nation that takes to corruption and profiteering even during the periods of adversity. In sharp contrast to India, Pakistani manufacturers are increasing prices at will while our dealers are charging, "own money" (or on money) from car buyers. For affluent sections of our society, rupee hundred thousand extra or so means nothing and that is why the sale of bigger and luxury cars goes on unaffected.

According to a Dawn report, Honda City has been launched at Rs.1,319,000 while Corolla XLI and GLI carry price tags of Rs.1,269,000 and Rs.1,389,000 respectively. According to the market sources, dealers have started charging "own money" on these models since the import of used cars has almost stopped after the government decision to reduce the depreciation on the taxes and import value of car from two per cent to one per cent. The elite class customers waiting for the launch of new models are said to have gone on a shopping spree irrespective of the extra 'own money' charge. Market sources further say that landlords and big growers along with their family members keep visiting the market to ensure spot buying at premium prices. While the car sales have started picking up, the manufacturers are deliberately creating demand and supply gap to charge higher prices. The roundabout ban on import of used cars has come as a boon to them and they are making money with the help of market dealers. Such is the state of affairs in feudal societies.