IMPACT OF FUEL COST ON AUTO SALES
June 27 - July 3, 2011
Has the fuel price hike had any impact on Pakistan's auto industry sales? In the second half of outgoing fiscal year 2010-11 (January-June), Pakistani government raised the petroleum prices at least three times. In May, the government passed on the full impact of international market to domestic consumers ranging between Rs1.80 and Rs9.32 per litre effective. After this increase, oil prices in Pakistan touched Rs100 per litre mark due to hike in global oil prices. In April, the government raised prices of petroleum products by 9 to 13 percent increasing petrol price by Rs6.98 per liter, while high speed diesel price by Rs10.67 per liter. The country's auto industry sales dipped 10.36 percent to 12,172 units in April on monthly basis as compared with 13,579 units in March, according to Pakistan Automotive Manufacturers Association (PAMA).
Car production (11,427 units) and sales (12,172 units) during April have shown respective declines of 23 percent and 11 percent on month-on-month basis. The decline is however not attributed to fuel price rise in April but to the negative impact of slowdown in deliveries amid production concerns.
The experts argue that high petrol prices do not always bring about a fall in demand for vehicles since a new car is often more fuel efficient than an older offering the buyer the chance to save money. Customers prefer vehicles which give better fuel efficiency. The costs of running a vehicle continue to rise well above the average rate of consumer price inflation. Petrol prices in recent months have been at a record high and car insurance premiums have been increasing at a rapid rate.
In fact, Pakistan's auto industry sales in 10 months of outgoing fiscal year depicted an improvement of 13 percent on yearly basis. Car sales for the month of April 2011 improved by seven percent on yearly basis to 13,914 units as compared to 12,969 units sold in the same period last year. Except pick ups, other segments of the auto sector showed dismal picture as sale of trucks, buses, jeeps, tractors declined by 21 percent, 23 percent, 25 percent and 3 percent, respectively in 10 months FY11. However, pick ups' sales were up by 16 percent during the said period. Company-wise numbers show that volumetric sales for Pak Suzuki (PSMC) declined by 22 percent on monthly basis to 7,510 units as compared to 9,626 units in March 2011. This is due to higher base affect amid delivery of previously booked vehicles in March.
Most cars in the country have dual fuel options and run on compressed natural gas (CNG) which is more affordable than petrol in the country. Many locally made cars such as Suzuki Mehran, Suzuki Cultus, Suzuki Ravi, Suzuki Bolan, Daihatsu Cuore, etc are globally obsolete cars from the 1970s or 1980s which are no longer produced or sold in any country other than Pakistan.
Overall car sales increased to 59,646 units in the first half of the outgoing fiscal year (July-December) as compared to 53,565 units in the same period of last year, according to figures released by the PAMA. Irrespective of rising price of cars, consumers' passion for 1,300cc and above cars remained buoyant, pushing up overall sales by 12 per cent to 27,252 units in July-December 2010 as compared to 24,335 units in the same period of 2009. The highly costly car Honda Civic topped with 26 per cent rise in sales to 2,918 units as compared to 2,312 units. An 18 per cent increase was recorded in Honda Civic sales to 3,957 units as compared to 3,359 units. Toyota Corolla sales showed scant rise of 3.24 per cent to 18,717 units as against 18,129 units.
Some carmakers are hopeful of rise in demand of cars from the rural areas on the prospects of good crops. Pak Suzuki Motor Company Limited, having over 50 per cent market share, plans to increase its production by 11 per cent in 2011 as compared to 2010. It plans rolling out 87,580 units in Jan-Dec, 2011 as against 78,840 units produced in 2010. There is also a demand for enhancing the production of 800-1,000cc cars in coming months in view of the increasing demand from the growers as the country will witness increased wheat, sugarcane, and rice production this season coupled with surging prices of sugarcane and cotton. The higher production of 800-1,000cc segment of cars will ensure timely delivery.
A few months ahead of budget 2011-2012, the government increased the age limit of used cars to five from three years imported under gift, transfer of residence and baggage followed by increase in depreciation limit up to 60 from 50 per cent. The customers who are still paying high prices for these cars, are yet to benefit from this measure.
Critics say that the used car dealers have eaten up the government's incentive given to them for providing benefit to the car buyers. Perhaps the main reason for non reduction in used car price after depreciation hike is the jacking up of price of locally assembled cars. Any increase in locally car assembled prices makes an instant impact on used cars. Even many people, who sell their used cars at their residence, also start demanding higher prices in anticipating of huge demand of used cars when locally produced cars become out of reach.
Some analysts believe that the government actually created an instrument of competition against car assemblers by allowing import of used cars. They however contend that the car age for imports from three years to five years will not serve any purpose as the gap between the selling cost of the local cars and imports under the present duty structure is very high, which will ultimately decline the import of used cars.
Rising prices of locally-manufactured vehicles has made it difficult for the people to buy car. The local auto manufacturers have been overcharging the genuine customers by collecting "premium" and selling cars much at a much higher price than their official retail amount. The government's decision sends a message to the powerful local manufacturers and assemblers to reduce their car prices. Toyota Company has already reduced prices of localm cars by a maximum of Rs40,000. The country has witnessed fluctuation in local car production, as production is linked with consumers' purchasing power and increase in mark-up rate.
Critics say that allowing used car imports under various schemes had been misused and currently, it has started damping demand of locally produced cars. The used car imports will put additional burden on country's import bill besides devouring foreign exchange.