AUTO INDUSTRY IN PAKISTAN

S.M.ABBAS ZAIDI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Apr
5 - 11, 2010

Pakistan an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of auto industry to GDP in 2007 was 2.8 per cent, which is likely to increase up to 5.6 per cent in the next 5 years.

Auto sector presently, contributes 16 per cent to the manufacturing sector, which also is expected to increase 25 per cent in the next 7 years.

MARKET SHARE

Pak Suzuki had the highest market share of 52 per cent in FY09, followed by Indus Motors 35 per cent, and Honda 11 per cent. The market share of Pak Suzuki declined to 52 per cent in FY09 from 62 per cent in FY08. Dewan Motor's market share also decreased from 5 per cent in FY08 to just 2 per cent in FY09. However, Indus Motors and Honda Atlas gained market shares. The market share of Indus Motors improved from 26 per cent in FY08 to 35 per cent in FY09. Honda Atlas' market share surged from 7 per cent in FY08 to 11 per cent in FY09. The sales of both Pak Suzuki and Dewan Motors plunged considerably by 56 per cent and 75 per cent respectively. Indus Motors and Honda Atlas also registered lower sales of 29 per cent and 28 per cent respectively. Although Honda Atlas ranks third in car sales, it led the motorcycle segment with a market share of around 72.5 per cent in FY09.

FUTURE OF AUTO INDUSTRY IN PAKISTAN

PRODUCT 2007-8 VISION 2012
Cars (nos) 164,710 500,000
2 wheelers (million) 1.06 1.7
Investment (Rs billion) 98 225
Contribution to GDP (%) 2.8 5.6
Contribution to manufacturing sector (%) 16 25
Direct Employment 192,000 500,000
Gross sales turnover (Rs billion) 214 600

CAR FINANCING

The performance of the car assemblers remained lackluster during FY09 owing to the economic meltdown in the country. In the wake of rising steel prices, appreciation of yen against rupee and imposition of 5 per cent FED in the budget FY09, the car assemblers passed on the increase in cost to the consumers. The increase in car prices weakened the demand for cars. Also, high interest rates and reduction in car financing facility offered by banks further depressed the demand for cars. Thus, the industry car sales went down by 50 per cent from 147,441 units in FY08 to 74,180 units in FY09. Sales went down mainly in the 800cc and 1000cc categories, which contribute 60 per cent to the total auto sales.

Also, high interest rates and reduction in car financing facility offered by banks further depressed the demand for cars. Thus, the industry car sales went down by 50 per cent from 147,441 units in FY08 to 74,180 units in FY09. Sales went down mainly in the 800cc and 1000cc categories, which contribute 60 per cent to the total auto sales.

AUTO INDUSTRY 2009-10

The consumers' confidence in the prospects of improving economy has reflected in increase in car sales, which has surged by 32 per cent to 75,275 units in eight months of current fiscal year 8MFY2009-10, as compared to 54,660 in the same period of the last year.

The passenger cars production and sales are up by 32.6 per cent and 37.8 per cent respectively. The growth is primarily driven by a 79 per cent growth in Indus Motors. The company sales jumped during the period mainly due to a low base effect carried over from last year (phase out of the previous Corolla model), and a strong performance of Corolla.

Moreover, PSMC also registered a 20 per cent YoY growth during the period. The new calendar year has started off on an optimistic note for the auto industry and consumers after witnessing better economic indications prefer buying new cars. In 1300cc and above cars, Honda City and Toyota Corolla witnessed impressive performance, as their production and sale have increased by 28.95 per cent, 71.97 per cent and 35.15 per cent, 76.18 per cent respectively.

Some of the reasons for improved car sales are higher taxes on imported cars and economic stability. The situation appears even more stable on year-on-year basis with strong improvements in the sector.

The production and sales of trucks improved 13.9 per cent and 19.9 per cent during the period. In case of buses, production and sales are up by 10.7 per cent and 6.3 per cent respectively. LCVs (Pick-ups) production and sales are substantially down by 21.8 per cent and 11.9 per cent respectively. However, two/three wheelers, both production and sales are up by 46 per cent. In case of tractors, production and sales are up by 26.8 per cent and 30.7 per cent, respectively.

Auto (Cars + LCVs) and car sales for February 2010 are up by 90 per cent YoY and 73 per cent YoY, respectively. Pak Suzuki (PSMC) is the primary determinant for this growth as its sales are up 246 per cent YoY owing to abnormally poor sales last year. In Feb 2009, PSMC witnessed its lowest sales since Dec 2001, due to all time high car prices and interest rates. Indus Motor also registered a YoY growth of 38 per cent on the back of impressive sales of Corolla. Moreover, Honda Car posted a growth of 15 per cent YoY.

However, on a month-on-month basis, auto and car sales were down 7 per cent and 10 per cent, respectively. The decline in sales is mainly due to higher sales in January because of the New Year factor.

FUTURE OUTLOOK

The auto industry is currently faced with a number of problems. There is increased competition from imported cars and used cars. This is threatening the future domestic sales in the country.

The inflationary pressure and unfavorable economic conditions are decreasing the purchasing power of the middle-income population and thus hampering demand. Cost of imports has also increased due to rupee depreciation. The elimination of 5 per cent FED in the budget 2009-10 has provided a relief to the auto sector.