MOTORCYCLE PARTS PRICES UNDER DEVALUATION STRESS

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Oct 12 - 18, 2009

Being a low-income country, Pakistan has large numbers of people using economical modes of transportation like motorcycles and low-priced light vehicles. Public transportation system is not as comfortable as to be counted a befitting substitute, though large numbers of people use it. This is a main reason that made acceleration of production and sale of economical vehicles following the introduction of deregulation of automobile sector and within a decade (1999-2009) the sale of only motorcycles increased from 90,000 to 0.5 million per annum.

While there were critics of liberalization policy of Shaukat Aziz government that opened a floodgate for foreign motorcycle brands, some termed the arrival of Chinese two and three wheelers brands as trendsetters that broke the oligopoly of Japanese Yamaha, Honda, and Suzuki whose prices were out of range of most of the low-bracket income group. While Chinese and local brands have given a stiff competition to prices of leading brands in Pakistan, they could not remove the other factors that are underlying causes of post-purchase instability of prices. There are multiple factors responsible for preventing long-term price benefits to customers. Pak rupee disparity against currencies of trading partners is a prime catalyst of price uncertainty.

Automobile sector of Pakistan has not developed local integration to an extent to supplant spare parts and engineering accessories imported in the country, making it a major foreign exchange dispatcher. Its dependence on imported spare parts to complete local assembly line makes it vulnerable to fluctuation of face value of currencies. Motorcycle assemblers still depend on supply of complete built units, complete knocked down kits, and semi knocked down kits from across the border. Similarly, manufacturers depend on imported engineering spare parts to manufacture two and three wheelers.

Interestingly, depreciation of rupee against for instance Yen, Yuan, and dollar does not bring a considerable price difference in final price of final products, but this devaluation stokes uncertainty and instability in prices of spare parts in replacement markets. The war of price going on among more than ten local and foreign manufacturers and assemblers of motorcycles reduces the likelihood of their impulse response to cost increments. To keep hold of market share, they are less likely to transfer impact of high cost to final customers in the growing motorcycle market. It may be because of low impact of high cost or availability of compensatory options such as consistent growth in sales. In July-August (2009-10), 106,613 two and three wheelers were sold as against 87,462 in the corresponding months of last fiscal year, according to statistics complied by Pakistan Automotive Manufacturers Association. Honda and Yamaha still hold the dominant position in sale as total 70,130 units (Honda) and 20,121 (Yamaha) were sold in two months. Sales of Suzuki, Shorab, Qingqi, Hero, and Ravi stood at 2,609, 1,351, 183, 5,753, and 3,460 respectively.

Often, trend of prices in replacement markets selling auto spare parts is neglected or not officially followed. In fact, price benefit should not die down at the threshold of sales outlet but it must continue as post-purchase services to customers. Pak rupee devaluation unleashes wave of cost escalating affects on the imports coming in to Pakistan, increasing price margins of imported items and resulting in acceleration of price of products being sold in the country, which causes inflation. For last one and half year, Pakistan rupee has lost its value perniciously to US dollar, which is single foreign reserve of the country, and basket of other currencies. While depreciating rupee value causes imbalances in external factors, the worst part of it appears when imports become expensive.

Having decades-long trade deficit, Pakistan's economy has to suffer because of paying high prices for unchanged volume of imports annually in addition to make local consumers non-beneficiary of any low prices of products in international market. That people in Pakistan could not avail the tumbling prices of international oil recently to a greater extent is a befitting example of this. Imports in Pakistan continue to outnumber exports from the country, though the government has tightened noose around imports by imposing regulatory duties and custom duties.

The cost-pulling external factors created either by currency devaluation or strict import policy hit purchasing power of automobile customers. Although all automobile spare parts importing in the country factor in high cost impact, price difference of motorcycle spare parts and accessories replaced in large volume due to high and frequently usage affects larger segment of the society. The price uncertainty in replacement markets is perceptibly high. There are many famous motorcycle replacement markets in all major cities of Pakistan, selling local as well foreign manufactured spare parts and accessories. Durable quality of imported engineering goods attracts customers toward them, despite local substitutes offer a distinctive price benefits.

Local parts mostly take influence of internal cost-pulling factors and therefore they maintain price competitiveness over imported alternatives. For last one and half year the unabated inflation has made prices of goods to increase every now and then, bringing about a chain reaction from first to final stage of production. The situation has become worst for the widely consumable and necessary items such as auto parts imported in the country. Petroleum products can not refrain itself from taking international impact, though they do in proportion when oil price goes up. Fluctuation in prices of engine oil, engine and body parts has become a routine matter even when this can be prevented if ministry of industries monitors dutifully price index in replacement markets. Most useable items of motorcycles like plugs, wheel chains, condensers, etc. are under the serious effect of price uncertainty nowadays. Their prices are subject to increase suddenly and retailers of spare parts are compelled to convince customers to revised prices.