AUTOMOBILE IS MOTHER OF INDUSTRIES
FISCAL REFORMS ARE VITAL FOR GROWTH OF DOMESTIC INDUSTRY
Sep 14 - 20, 2009
Taxation reforms, which are in the pipeline, are aimed at generating additional revenue of Rs400 billion besides facilitating corporate sector as well as manufacturing sector, which posted a negative growth.
Automobile sector that though has shown some improvement in sales in the month of July and August needs special relief in the face of ever increasing exchange rate depreciation, which is adding to the cost of production and eroding the profit margins of the automobile companies.
Despite all efforts for improving deletion level in Pakistan, the import of CBUs as well as CKDs are still the principal part of the automobile sector, which adds to the cost of production due to appreciating of Japanese yen against dollar and depreciation of rupee against dollar, which unleashed severe fallouts for the economics of car manufacturing in Pakistan.
It is learnt that the taxation reforms are about to implement in the areas of short-term market-related capital gains, income tax for stockbrokers, VAT mode in replacement of sales tax, and withholding system for the agriculture income tax.
Though the car sales have shown sign of improvement, yet in fact it is a seasonal factor as every year the car sales during the month of Ramazan go up because a large number of overseas Pakistanis purchase cars for temporary use during their stay in Pakistan.
Actually, the sales volume of used cars is much higher than the new ones because visiting overseas Pakistanis prefer to involve minimum amount in buying a car for their temporary stay in Pakistan. Hence, sales value and volume of the used cars have also shown a robust growth during month of Ramazan.
The roadside car vendors also organize weekly "Car Bazar" before Eidul fitre in different parts of Karachi.
Generally, domestic passenger car sales are showing continuous sign of improvement on monthly basis during financial year 2009. It seems that new fiscal year has started on an optimistic note for domestic auto industry.
As per the latest figures released by PAMA for the month of August 2009, car sales unveiled an increase of 11% on MoM basis to 8,441 units as against 7,614 units in the previous month.
The situation appears even more buoyant on YoY basis with strong improvement of 31% in passenger car sales. However, because of lower base in the similar month of last year, the numbers portray massive growth in the month.
It is interesting to note that during the first 3 months of financial year 2009, car sales numbers were unusually lower due to phase-out of Corolla's previous model. In the first quarter of financial year 2009 (Jul - Sept), Corolla sales averaged at 640 units as against 2,760 units in the rest of the period of the fiscal 2009.
The base-effect will be imminent in one more month of current fiscal year. Moreover, during second month of financial year 2010, passenger car sales stood at 16,055 units as against 11,177 units in the similar period of the last year - indicating a growth of 44%.
Meanwhile the persistent economic slowdown, limited avenues for auto leasing and record domestic inflation had hit hard the economy class consumers. That said, lower-end segment's passenger cars were most affected by economic woes.
However, with the recovery in domestic economy along with price cuts by Pakistan Suzuki Motors, a dominant player in 850cc segment with 85% market share, the demand for low-end cars has also shown some improvement. In addition to this, high-end segment cars are becoming less affordable for mass market.
In August 2009, 850cc segment's unit sales increased by 38% to 2,362 units as against 1,708 units in the preceding month, while unit sales of 1300cc & above segment dropped by 1% to 4,326 units. Pak Suzuki is to remain the major beneficiary, as it is dominant player in the economy-class segment.
On MoM basis, Pak Suzuki is showing consistent recovery in its sales as the company has made sequential price cuts across the board. In August 2009, car sales of Suzuki Motors surged by 26% to 3,758 units as against 3,002 units in the preceding month.
In order to recapture lost market share and to achieve economies of scale, the company cut its prices (2-6%) in April 09 on most of the categories. Further, in June 2009, the company has completely passed on the impact of the removal of 5% FED on cars above 850cc.
Later on, in July 09 Pakistan Suzuki Motors again reduced prices of its 850cc & below segment cars (approx 70% share in total sales). With recovering its sales, market share of Pakistan Suzuki Motors has improved to 45% during August 2009 versus 39% in July 2009.
However, on yearly comparison, in August 2009, sales of Pak Suzuki posted a decline of 8%, while its market share shrank to 45% versus 64% in same month of FY09.
Marginal increase witnessed in Indus volumes while Honda cars sales dropped. Indus Motor, a market leader, depicted a marginal increase of 3% in its passenger car sales in the month of August 2009 at 3,551 units as compared to 3,455 units in July 2009. However, on YoY basis, this indicates a jump of 2.85 folds. During the month, Indus Motor's market share dropped by 3pps to 42% as compared to 45% in a month earlier. On yearly basis, this indicates an increase of 23bps in its market share. On the other hand, in August 2009 Honda unit sales were recorded at 1,053 units - down by 8% on MoM and 2% on yearly basis. Its market share remained at 12% - down from 15% in the month of July 2009.
As a matter of fact, the automobile industry, which is known as mother of industries or engineering, is a respectable contributor to economic growth of the country and deserves incentives in the larger interest of industrial growth of the country. In this respect, it is strongly recommended that the imports of all sorts of cars both for private and public use should be stopped forthwith to lend a helping hand to the domestic industry.
Amidst highly fluctuating exchange rate that hits the industrial growth on one hand and erodes purchasing power on the other, it is time to promote innovation in the industry through fiscal measures. That said, one must not contain inflation by deploying high interest rate as a tool.
Marriott International, which oversees and evaluates the performances of more than 3000 hotels & Resorts all over the world, has conferred a prestigious "Mustang Award" on Mr. Zulfiqar Ahmed Malik, General Manager, Islamabad Marriott for demonstrating exemplary leadership, made extra ordinary contributions to the business, and have made and influenced decisions that protected and perpetuated Marriott "Spirit to Serve Culture". This award recognizes the General Manager for overcoming tremendous adversity and demonstrated courageous leadership during very difficult times. As award recipient, the General Manager is known to be a role model of professional expertise and high performance while showing exemplary concern for the guests and associates.