Mar 02 - 08, 2009

Auto industry in Pakistan enjoying about 25% Cumulative Aggregate Growth Rate for the last five years, now seems to be in struggle to maintain the growth rate in the wake of high inflation, gigantic interest rates and worsening economic and production activities.

The productions and the sales have been mounting upwards since 2001 but the very jolt of economic downturn has brought a new downturn for the industry.

The current fiscal year has been the most challenging year for the industry as during the seven months of current financial 2008-09, almost all products of automobile industry have witnessed decline.

Total car, truck, and buses sales and productions have declined around 50% compared to last year figures, while Jeep & Motor Cycle sales & productions have declined around 25%. Total sector volumes have declined around 30%, the analysts are expecting the decline to be more than 40% for the FY09, and thereafter 10 to 15% recovery is expected in FY10 when liquidity, productions, and interest rate will be quite favorable.

According to latest figures released by PAMA for the month of Jan-09, car sales during Jan 09 have shot up by 157% MoM compared to 58% decline in Dec 08. The sales values seem like breaking the declining trend because it is an activity amid absence of triggers coupled with the increased prices of vehicles.

The improvement in sales is possible if potential buyers holding their buying come back on the expectations of decrease in interest rate, which was very high during the month in consideration.

The LCV's sales growth, which was rearing the overall trend of the sector over the past few months, has declined by 45% MoM in Jan 09. Overall, the Cars + LCVs sales have declined by 41%YoY during 7MFY09 as the high interest rate environment and cost pressures continue to plague the industry.

Car sales are lower by 47%YoY during 7MFY09 while LCV sales are down by 3%YoY during the same period. Liquidity issues coupled with limited car financing avenues continue to weigh heavily on the sector.

The imported cars, which represent only 4% to 5% of the industry, are also expected to post a decline in sales of 30% to 40%. As the government is seriously looking to curb its import bills, it is taking different measures e.g. the depreciation rate for the imported cars has been reduced from 2% to 1%. The depreciating rupee has made imported cars more expensive. As the share of the imported cars in total industry is minimal, its impacts will also be very small.

Major players in the industry are Honda Atlas, Pak Suzuki, and Indus Motors Company.


With an astonishing growth in Suzuki Alto and Mehran by 633% and 418% MoM during Jan 09, PSMC has posted sales volume of 3.48k vehicles, translating into an overall MoM increase of 55%. However, 7MFY09 sales volume declined by 43%YoY to 36.21k units.

Suzuki Liana witnessed down of 71% YoY during 7MFY09 while 800cc and 1000cc vehicle classes' average volume also declined by 51%YoY. Only Suzuki Ravi achieved a sales volume growth of 44%YoY. Vehicles with high reliance on financing facilities suffered the most.


Negligible sales were recorded for 'Honda City' as buyers waited for the introduction of the new model, which was launched on January 27, 2009. Despite that, HCAR has managed to post a solid performance with an overall sales growth of 219% MoM during Jan09.

Looking at 7MFY09 statistics, with overall sales down by 29%YoY to 5.76k units, the damage appears to be comparatively less than the industry deterioration.

Indus Motor Company: Sales for INDU have strongly rebounded in Jan 09 with Cuore sales up by 228% MoM and the re-launched Corolla up by 148%MoM during the Jan09.

The monthly data shows that the new Toyota Corolla has been welcomed by the masses as the sale of the new model has gathered momentum. A high proportion of cash sales in this vehicle class would certainly help the companies to sustain the impetus.

However, the competition between the pricier new Honda City and Toyota Corolla's XLi and GLi models would be of very importance and will provide gains to the company.

Looking at the 7MFY09 trend, the company's sales volume stands at 16.74k units, which are down by 35%Y-o-Y. Limited financing availability is having a significant impact on sales of Daihatsu Cuore, down 41%YoY during 7MFY09.


With limited price triggers in the near-term, it is very hard to foresee auto sector outperforming until the interest rate eases. The expectation of discount rate cut is very high as cut-off yields on Government securities have declined by almost 80-90 bps points, clearly indicating a policy rate decline by approximately 150 to 200 bps.

The car productions need to be enhanced, though it is quite difficult in energy crisis, which Pakistan is facing nowadays.

The car sales also heavily depend on consumer financing, which is quite low in the market. Until banking sector comes out of liquidity crisis and risk scenarios improve, the financing will be low and car sales may not get proper momentum.

It is quite difficult for the sector to reconcile the 7MFY09 losses in the next few months of the current fiscal year, but the conditions will start improving with lowering of interest rates.

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