TSUNAMI AFFECTS AUTO INDUSTRY

INDUS MOTOR STOPS TAKING FRESH ORDERS UNTIL NORMALCY RETURNS.

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Apr
25 - May 1, 2011

Indus Motor, leading automobile producer in Pakistan, has decided not to take any new orders with immediate effect till further notice in view of the unprecedented situation and uncertainty created on the back of devastation caused by earth quake and Tsunami last month in Japan.

This temporary situation would affect production of much sought after brands including Toyota Corolla as well as Cuore. The company will however honor the orders in hand to supply some 2000 units of Corolla cars

This temporary suspension of supply naturally would be an opportunity for the people involved in importing of used cars as only during the current month of April some 1400 hundred used cars arrived at Karachi Port from Japan via Dubai.

Mr. Raza Ansari, Director Marketing Indus Motor Company (IMC) said at a press briefing that after a comprehensive assessment of the impact of Japan's March 11 earthquake and tsunami on its parts supply chain, IMC would be operating at around 60 per cent of its production capacity in the month of May with a similar outlook for the month of June. Future production schedules have not been firmed up as yet and IMC will be monitoring the situation with the support of its principals and inform its stakeholders accordingly.

Despite this crisis, the company will continue to provide employment to its more than 1,900 employees, with their idle time utilized in trainings and plant improvement activities.

"This is a necessary response to address the ongoing supply crisis in Japan and we intend to resume peak production levels as soon as possible. Our current focus is to ensure that we honor all commitments against the orders on hand and reduce the impact on customers of our immediate production shortfalls. Given the nature of the Japanese crisis resulting in a parts' supply shortage, customers should be prepared for some delays in vehicle delivery. We request our valued customers to be patient while IMC endeavors to minimize any inconvenience to them," Ansari said.

It is interesting to note that the affected supply chain of the auto industry especially related to Japanese technology has confronted with the situation at a time when there is a rising demand for new cars on the back of bumper agriculture outputs. Under the prevailing situation, the local producers may not be able to match the demand due to Japan factor restricting supplies, hence it is quite visible the commercial importers of the used cars may enjoy a windfall profits due to curtailed production by the local automakers.

The supply side constraints are feared to take worst turn primarily due to earthquake and tsunami in Japan, which the local manufacturers might confront with a drop of 43 percent or in exact term some 27,000 cars in the last quarter of the financial year 2011.

Though the main factories of Toyota are located in the south of Japan, which are luckily safe from the ravages of Tsunami, however some of the installations producing electronic equipments in the Northern part of Japan were severally hit by Tsunami.

When it was pointed out during a recent discussion with a senior official of Indus Motor that had the local auto manufacturers gone for indigenization of the maximum level of parts, the situation of production level would have been quite different from what it is today, he vouchsafed putting blame on lack of stability in government policies causing uncertainties in this highly vibrant sector.

It may be mentioned that had some of the local manufacturers achieved maximum level of the deletion targets, they would have been least affected by the Tsunami, which has virtually brought many industries to a total standstill in the affected parts of Japan.

He cited the example of import policies especially relaxation in age limit of used cars that shocked the confidence of the investors.

According to latest data, the sales of locally assembled cars and light commercial vehicles improved 24 per cent year on year basis to 15,710 units in March 2011,

The uptick in sales of automobiles is due to pre-buying by investors ahead of post-harvest peak demand season from agriculture belt of the country.

It may be noted that deliveries of Pakistan Suzuki motors rose after OGRA lifted ban on CNG cylinders. According to the market analysts, cotton and wheat farmers ramped up gains on high support prices.

So far, the Pak Suzuki remained the best performing company with 61 per cent market share and 48 per cent YoY growth in volumes during the month of March. Apart from 38 per cent month on month jump in volumes partly due to pent-up demand for CNG units, the sequential trend shows rebound in its small car sales as sales of small segment cars like Mehran apparently improving by 43 per cent YoY and Alto by 40 per cent YoY in Jan-Mar 2011.

However, as far as Indus volumes were concerned the numbers remained subdued ahead of the new model launch of its Corolla variant.

While the demand side of the equation remains robust due to good harvest, auto circles believe that volumes could remain depressed on account of supply constraints due to the Japan factor.

However, normalizing supplies, pent-up demand, and introduction of new Corolla variants should lift volumes going forward. Indus has already launched the new variant of its Corolla Xli and GLi with higher selling prices (up 4.6 per cent) while it will be launching lower engine size version of Corolla Altis in coming months.