RUPEE DEPRECIATION TO PUSH UP CAR PRICES
Aug 23 - 29, 2010
With a record appreciation of Japanese Yen of near 10 per cent against Pak rupee only during last three months the prices of commodities imported or linked to Japanese currency will likely increase.
Recent rally in Yen has resulted in 12 per cent currency appreciation against Pak Rupee since May-10 to Rs1/Yen, the highest level in history which may push up car prices. This rally besides fast eroded agriculture income due to flood devastation can drastically reduce demand for autos as well.
A source in auto industry confirmed that one dollar was worth Rs73.81 in September 2008 and its value has since then increased by over 16 per cent to Rs85.68 now. Similarly, Japanese Yen was traded at Rs0.6867 in September 2008 while its present value is Rs1.0037. This is an increase of 46 per cent, he said.
Hot rolled Iron Sheet, he added, was worth $493 per ton in first quarter of 2009 and now it available at $1050 per ton. The rates of aluminum primary ingot has increased from $68 per pound to $108, he added.
Domestic car industry is in a fix as the government wants it to cut car rates while the rupee has depreciated substantially against the dollar and Yen. Raw materials prices scale and capacity utilisation of the industry is down to 55 per cent.
Auto industry experts deplore that the government in recent times has put undue pressure on the local car industry by giving additional concessions to new entrants in violation of the Auto Industry Development Policy formulated with the consent of all stakeholders. There is a threat that the rules for import of new cars would also be relaxed.
They said that the government is fully aware of the economic depression coupled with high inflation prevailing in the country that has resulted in increase in rates of every commodity and product in the country. They said that car rates in the country have not jumped in line with the increase in the rates of other products. In fact, rates of some brands have registered a decline as well. They said even the increase in the rates of used imported cars is more phenomenal when compared with their rates two years back.
"I fail to understand as to why the auto-industry is being particularly targeted," said a leading manufacturer on condition of anonymity. He asserted that the rates of locally produced vehicles are generally the cheapest in the region when compared with other countries after accounting for the government levies in each country. "We have to pay 35 per cent taxes and duties on each car we produce," he said adding that if the government wants the car rates reduced it should reduce its levies.
Another car assembler said that the economic turmoil has impacted the productivity of the industry. He said in 2009-10 Suzuki operated on less that 50 per cent of its installed capacity of 150000 units and produced only 71998 cars. Honda, he added, has a capacity of producing 40000 cars per year but it could roll out only 13500 units. He said Dewan having a modern assembling plant produced 1218 units which is 12.18 per cent of its total installed capacity of 10000 cars. He said Indus motor was the leader in capacity utilisation and produced 50557 cars against installed capacity of 65000 units.
Senior market analyst Dr Shahid Zia pointed out that car manufacturers spend on average 30 per cent of the cost of each car produced in the country on imports. The imports have become costly because of depreciation of rupee against dollar and further depreciation of dollar against Japanese yen. He said since most of the car components are imported from Japan the currency fluctuations have badly affected local car industry.
Since the main demand driver for autos i.e. agriculture income is the worst hit by the flash flood that would certainly affect the demand for cars in near future. According to assessment agriculture income directly contributes 40-45 per cent of sale volumes. In a worst-case scenario the experts are of the views that car demand can drop by 25-30 per cent. The historical data shows that car sales dropped by 20 per cent in Financial Year 1993 due to floods and yellow cab scheme.