UNDERGOING A SLUMP

KANWAL SALEEM
(feedback@pgeconomist.com)
Nov 15 - 21, 20
10

The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the country's most important economic sectors in terms of revenue collection.

Pakistani auto industry has seen a boom a few years ago due to low mark-ups and relaxation in lease terms. However, with an increase in mark-up rates and tightening consumer-based finance has resulted in decrease in sales of new cars through lease.

The share of auto sector in Pakistan's GDP is 2.8 percent while its share in the manufacturing sector is around 16 per cent. The industry job multiplier is between 1: 3 to 1:8. Encouraged by the automobile growth from 2001-2007, the industry and the government of Pakistan fixed a target of over half million units' production by the year 2011-12 that now seems out of reach.

Despite the fact that the business of manufacturing units has to suffer due to security issues and flood devastation, sales of cars and light commercial vehicles in Pakistan increased by 10 percent to 33,496 units in the first quarter of fiscal year 2010-11.

This depicts the strength of automotive industry in Pakistan. However, this industry like other industries is facing manifold challenges in the face of high cost of doing business. However, this industry like other industries is passing on high burden of prices to the end consumers. Due to this situation, demand of allowing import of used and new 4-wheelers is growing.

Sale of Suzuki Swift increased to 252 units in the month of September, sale of Mehran were 2,145 units while only 22 units of Liana were sold. Approximately, 1,100 units of Cultus were sold. 1,060 units of Bolan were sold. Sales of Alto dropped by 94 units to 1,047 units as compared with August. 548 units of Civic were sold. Honda sold 832 units of the City representing an increase of 144 units from August. Sales of Coure dropped to 323 units, while Corolla remained as market leader with a total number of 3,070 units sold.

The industry sources believe that the decision of federal cabinet to impose reformed general sales tax (RGST) would have serious consequences for the automotive industry, as it would not only slash the sales of 4-wheelers as well as tractors in particular but also badly hit the sub sectors of this industry.

Official circles are of the view that the decision for RGST was announced in the budget speech of the finance minister and now it was high time to implement as it is demanded that we should become a self-reliant nation.

It may be noted that the RGST was presented in the budget for 2010-11. However, its imposition was delayed to take all provinces on board and to have a consensus decision.

The data released by PAMA said that despite fewer working days in the month of September due to Eid Holidays, cars and LCV sales managed to rise by six percent month-on-month basis to 11,663 untis. "The growth is not encouraging as September sales are still seven percent lower than average monthly sales in 2010 year-to-date," said the report. "Indus Motors and Pak Suzuki managed to sell 11,792 units and 17,820 units, up 13 percent and eight percent, respectively," an auto market analyst said.

According to him, other segments of the auto sector displayed negative growth by two percent by selling 725 units as compared to 744 units in the same period of last year. Production and sales of buses remained down by 28 percent and 16 percent respectively while farm tractor rose by 9.78 percent by selling 13,921 units as compared to 12,960 units last year. However, motorcycles and three-wheelers industry represented positive numbers by rising 14 percent in both sales and production respectively.

Due to increasing prices of new vehicles, the prices of used vehicles have increased by 20-35 percent. The cars manufacturers have increased the prices of new cars owing to depreciation of Pak rupee, said a car dealer. "The tightening of the vehicle leasing policy and the higher mark-up are the factors that are forcing the buyers to go for second hand vehicles," he added. He said that the small used cars are more in demand; therefore, their price has increased much more.

"The five years and less old vehicles are more in demand and maximum price increase have been seen in this segment, while there is a minor difference in the prices of cars more than six or eight years old," he added.

The overall auto sector showed a positive growth in sales during July-April 2009-2010 in which sales of tractors, buses, trucks, light commercial vehicles and two/three wheelers rose by 21, 4.79, 17.6, 1.15 and 48.24 per cent respectively as compared to corresponding period of last fiscal year.

Overall sale of 57,749 units (Fiat and Massey Ferguson) in the 10 months was recorded as compared to 47,666 units in the same months of corresponding fiscal year.

Makers of Fiat tractors sold 25,013 units as compared to 24,252 units while Massey Ferguson sales touched 32,736 from 23,414 units. A total of 600,651 units of two and three wheelers (Honda, Yamaha, Suzuki, Sohrab, Hero, Habib, Qingqi, Ravi, Sazgar etc) were sold in July-April 2009-2010 as compared to 405,197 units in the same period of last fiscal year.

Sale of Honda, Yamaha and Suzuki bikes rose to 391,105, 101,798 and 14,038 units in the 10 months of 2009-2010 as compared to 285,720, 46,390 and 12,651 units in the same period of last fiscal year. Overall truck and bus sales during the 10 months (July 09-April 10) of the financial year showed an increase of 15 percent (3,391 units) as compared to 2,939 units in the same period of previous fiscal year. In the truck segment, an increase of 17.6 per cent (2,844 units) was observed as compared to last financial year (2,417 units); while in bus segment a slight increase of 0.5 per cent was recorded (547 units) as compared to last financial year (522 units). An increase of 15 per cent in Hinopak Motors trucks and buses sale (1,607 units) was witnessed as compared to the last financial year (1,399 units).

Those associated with auto sector asked the government to continue its support to the automobile industry, especially commercial vehicle segment that was badly hurt by exchange rate, inflation, and law and order situation in the country.

Pakistan's automotive industry is continuing in a slump which began in the previous financial year and according to BMI's recently published Pakistan Automotives Report, the industry's performance this year will be even worse.

The poor state of the industry is reflected in BMI's Business Environment Rating for the automotive industry in Asia Pacific, where Pakistan is in last place on a score of 42.4 out of a possible 100. The market is held back by low production growth potential and an average rating for sales growth.

The Pakistani automotive industry needs to be strengthened so that with reduced prices not only local consumers can be able to get benefits but precious forex could be fetched through export of vehicles. But, it still appears a dream for which great commitment would be required.