TRACTORS' SALE DOWN ON SPARSE LOANS
SHABBIR H. KAZMI
Nov 28 - Dec 4, 2011
Overall auto sales during first four months of the current financial year posted robust growth mainly due to massive growth sales recorded by Pak Suzuki.
While Dewan Farooque Motors has not restarted production, decline in tractor sales should be a cause of concern for the policymakers. Sluggish performance of the manufacturers of parts and accessories remains a point of concern.
Combined sales of cars, jeeps, and LCVs rose 24 per cent to 58,800 units during 4MFY12. While car sales grew 51,800, jeeps and LCVs sales were 7,000 units.
Rising remittances coupled with improving income of farmers have been the main reasons behind this robust growth. On a MoM basis, auto sales were up by eight per cent in October to 15,000 units. Almost all local auto assemblers in operations posted increase in sales.
Pak Suzuki emerged as the top performer selling 35,000 units during July-October. Sale of Mehran increased to a hefty 11,400 units. Suzuki's car sale to government of Punjab for Yellow Cab Scheme was another factor contributing to this robust growth.
Sale of latter-day Swift grew to 2,300 units. Moreover, Cultus and Alto also posted a substantial growth to 5,000 units and 4,700 units respectively. In LCVs segment, Bolan and Ravi posted a massive growth to 5,500 units and 5,700 units respectively.
Cumulative sales of Honda Atlas Cars grew to 5,900 units during four months, variant Honda City playing a major role with sales of 3,600 units whereas another variant Honda Civic contributing 2,200 units.
Sales of Indus Motor Company were up to 17,800 units with its Corolla contributing 15,200 units and Hilux 1,000 units respectively, while Coure's sales were down to 1,500 units.
Having posted robust sale local assemblers fear some interruption in production and possible delays in delivery to customers following disruption in supply of vital parts and components from flood-hit Thailand.
A leading carmaker has already started airlifting most sought after parts from other countries and even Thailand to meet the delivery schedule. The company is airlifting two to three consignments daily from Thailand, Japan and other countries for maintaining normal pace of car production.
There is an apprehension that the assembler may increase price of cars but a formal announcement has yet to come.
Tractor manufacturers face a grim situation. They have witnessed a sharp decline in volumes since the beginning of the current fiscal year, mainly due to imposition of 16 per cent general sales tax and floods.
While GST was imposed in 4QFY11, industry sales volumes declined due to advance bookings of tractors. On top of this, ZTBL tractor loans remained suspended. With the regular and substantial increase in urea price coupled with a steep drop in cotton price added to the woes of farmers. As a result tractor sales declined by a staggering 78 per cent YoY during first two months of the current financial year.
The news reports indicating that the economic coordination committee was considering allowing import of cars, buses, and tractors on lower tariffs also encouraged the farmers to defer procurement of tractors.
Since the government wants to achieve food security, it must immediately abolish GST imposed in the recent budget. Import of tractors should not be allowed because local manufacturers have more than adequate capacity to meet the demand. At present, less than 10 per cent of the tractor market is served by imported tractors. One fails to understand the logic behind allowing tractor imports on lower tariffs.
ZTBL loans for the purchase of tractors support a weaker rural economy. Tractor Subsidy Schemes (Benazir tractor scheme providing 10,000 tractors throughout Pakistan, Green tractor scheme providing 10,000 tractors in Punjab and Sindh Tractor Scheme offering 5,000 tractors in Sindh) have provided strong impetus to tractor sales during the past three years. This is evident from increase in tractors sales to 69,203 in FY11 from 53,203 in FY08.
It may be recalled that in the past vehicle sales were driven by auto finance schemes. With the declining trend in interest rate, it has become imperative that financial institutions should once again start taking keen interest in auto finance. Growth in sales of 1000cc car clearly suggests that middle-income group is more inclined towards buying smaller cars. It is because of two factors 1) highly depleted public transport system and 2) rising cost of fuel.
Those who fear that any increase in auto financing will lead to more delinquencies may not be right. It is on record that defaults in consumer finance was the outcome of reckless lending, which was further compounded due to inadequate insurance cover. The worst was the experience of financing public transport. However, it must be kept in mind that public transport system cannot be improved without financing. Buying buses, trucks, trawlers and even cabs on cash is just impossible and buyers use informal system where the interest rate hovers around three per cent per month.