AVERTING FLOOD IMPACT ON AUTOMOBILE SECTOR
TARIQ AHMED SAEEDI
Aug 16 - 22, 2010
Last financial year saw a staggering rise in sales of cars in the country by almost 50 per cent over the preceding financial year while automobile sector depicted a robust growth throughout the year, to have come in line with performance of oil and gas sector in terms of appreciation in share value. The growth was so remarkable that the government had revised the growth rate of the last fiscal year by 0.8 percentage points to 4.1 per cent. Will this growth pattern continue in this fiscal year amidst fears of unstable macroeconomic indicators remains to be seen.
Analysts fret the massive impact of flood that is wreaking devastation across the country on the economic activities, which they believe will slow down due to substantial damages to agriculture sector that has over 20 per cent share in gross development products and provides vertical supports to industries in the country. The flood has been declared humanitarian disaster in the ever-recorded history of Pakistan bigger than earthquake of 2005 and even Tsunami of South East Asia in 2004. United Nations ranked the flood 60th in the list of natural catastrophes taken place in the world on account of numbers of death. The international humanitarian aid agency said in its earlier estimate six million people need aids to keep connected with life. This is indeed a disaster not only because of human casualties it is causing, but also because of widespread destruction it metes out on the infrastructure and properties, which will need trillion of rupees to come as they were.
Being an agriculture-based economy, Pakistan sees robustness in performances of auto sector when agriculture sector depicts good performances in its growth. When the agriculture sector gives good numbers in its annual growth figure, economic activities receive a palpable boost. Last year, productions in agriculture sector rose across the board and on the eve harvesting on Rabi crops started, automakers had forecasted upsurge in sales of cars. Automakers expected a considerable rise in sales of its cars for the entire last year. And, it happened as per the figures released by Pakistan Automotive Manufacturers Association (PAMA). The biggest jump was interestingly recorded in sales of cars of 1300cc and above that surpassed the numbers of economic segment cars of 800 to 1000cc. 1300 cc and above car segment witnessed a 57.4 per cent increase in its sales to 61,008 units over 38,755 units in the preceding fiscal year. Similarly, sales of 1000cc cars also registered a rise of 46 per cent more than the sales of 800cc and below 1000cc segments. Sales of 1000cc cars rose to 23,696 units in last fiscal year from 16,152 units in the preceding year, while sales of 800cc and below 1,000cc increased to 39,253 units as compared to 27,937 units. Economic segment cars are the most demandable in Pakistan. Two leading models of Suzuki and Alto which occupy the significant market shares in economic segment recorded an outstanding growth of 67 per cent and 65 per cent respectively in sales during the year ended June 2010. Sales of Suzuki Mehran stood at 22,513 units in FY10 in contrast to 13,421 units in FY09 while 10,794 units of Suzuki Alto were sold in the year as against 6,550 units in the comparable period. However, sales of Daihatsu Cuore and Hyundai Santro skidded to 5,301 and 244 units from 5,852 and 404 units apiece.
In last fiscal year, sales of Suzuki Cultus increased to 12,658 units from 9,198 units while sales of Liana also shot to 1,025 units from 851 units. Another leading revenue earner of Pak Suzuki, Bolan was sold 32 per cent more than the previous year. Its sales grew 11,439 units as compared to 8,664 units. Indus motors and Honda also saw growth in sales of their main brands. Sales of Toyota Corolla were up 63 per cent to 43,510 units from 26,760 units. Likewise, sales of Honda Civic increased to 5,908 units from 4,662 units and that of Honda City reached to 8,212 units against 6,482 units. A fledging brand of Suzuki Swift was liked by the public as its 2,353 units were sold within six months of its launch. It was launched at the start of 2010.
In FY10, performances of listed automobile companies on benchmark 100-shares Karachi stock exchange were also outstanding with oil and gas sector. According to a research by The Financial Daily, auto & parts sector emerged as the top performer in KSE during financial year ended June 2010 as it depicted 66 per cent performance appreciation over the previous year. Mainly on the back of robust performance of Indus motors that posted astounding 145 per cent growth in its share value, the sector received a boost, the privately run economic research house noted its research paper. "Oil & Gas Exploration gave return of 49 per cent. OGDC and POL performed well with a surge of 81 per cent and 48 per cent respectively."
Flood-stricken economy and particularly agriculture sector is not the only reason sparking fears of downward pressure on automobile sector, though implications of damages to thousand square kilometres of farmlands will spill after-effects over the industrial performances across the board. Especially, textile industry is likely to take direct impact with cotton shortages in future. Federal government also resorted to some actions this year that would upset the sales of locally assembled cars. First of all, local auto assemblers are disappointed over the policies giving relaxation to import of cars in the country. It is said the government is using pressure tactics to bring down prices of local assembled cars. It is relevant to mention that a proposal was under the consideration of the government to extend depreciation limit of used cars imported under personal baggage, transfer of residence and gift schemes from three to five years. Such measure is customer-friendly and will give relief to customers amid double digit inflation.
The time to take preventive actions to avert impending raft of pressures on the economy has perhaps passed since the probability is high that sectors relying on domestic consumers will get jitters. Decrease in prices of locally assembled cars can offset the impact on growth trajectory of automobile sector this fiscal year.