Sunday March 26, 2023

The top gear

January 02, 2016

KARACHI: The auto industry showed a robust performance in the year 2015, and kept itself amongst the top 10 performers in 2015, posting 13 percent return.

The automobile sector remained in the limelight due to improving car sales volume amid Punjab taxi scheme, launch of new Corolla model, and increasing car financing due to lower interest rates.

The total auto sales for the 11 months of 2015 stood at 206,097 units as compared to 143,062 units in 2014. Pak Suzuki Motor Company was the market leader with 121,276 units sold during the 11 months of 2015, as compared to 77,817 units in 2014.

Indus Motor sold 59,803 units in 11 months of 2015 as compared to 41,701 units in 2014. Similarly, Honda Cars sold 24,626 units till November 2015 as compare to 22,263 units in 2014.

There has been a surge in demand of the passenger car segment. Passenger vehicles demand reached 250,000 units at the closing of the year 2015, said Aamir Allawala, former Chairman Pakistan Association of Automotive Parts and Accessories (Paapam).

All the leading local auto manufacturers witnessed an increase in their sales. Among individual companies, Pak Suzuki Motors was the market leader, followed by Indus Motors and Honda Cars respectively. Similarly, there has been an increase in used car demands as well, said Allawala.

Indus Motor spokesperson said the year 2015 saw a remarkable turnaround in the business environment for domestic automakers and parts suppliers, who had been besieged with two consecutive years of volume decline. A general feel good factor was witnessed in consumer sentiment on account of improving macroeconomic indicators, falling inflation, lower interest rates and relative calm in the law and order situation across the country, enabling the demand for locally manufactured vehicles to remain robust throughout the year.

While commenting on the upcoming auto policy, he said, a stable and consistent application of policies is crucial to allow for unhindered growth of the automotive sector.  “We hope that the new auto policy will be a step forward to promote the ‘Made in Pakistan’ vision so the industry can attract credible new  investors  providing  greater  choices to the customers, and improving Pakistan’s economy by facilitating  the  manifesting  segment,  thereby creating thousands of additional jobs in auto and allied industry,” he added.

Tahir Saeed, auto analyst, said the auto sector witnessed volumetric sales due to the Punjab government’s taxi scheme, which boosted the Suzuki sales. Indus Motor’s new corolla was a big hit too and is still in demand. Another reason is the increase in auto financing, owing to 42-year low interest rates and overall improvement in the country’s economic situation, he added.

Weakening of Japanese yen against rupee by three percent year to date, benefited the auto assemblers.

Auto financing has increased to 30 percent and there is still scope for increasing it. The expected reach is 50 percent in 2016, if the interest rates remain low.

HM Shahzad, Chairman of All Pakistan Motor Dealers Association (APMDA), said the demand of used cars increased from July 2014 to June 2015, as 40,000 units were imported during the period, whereas 23,000 units were imported and sold from July 2015 to December 2015.

He said heavy vehicles, including trucks and buses, also show an improvement and posted an increase of 39 percent to 2,115 units during the five months of the fiscal year 2015.

As government has controlled the import of used trucks, bowsers, and sprinklers, which helped the business of the local assemblers, including HinoPak, Ghandhara Nissan limited, Daewoo Pak Motors (pvt) Limited, and Master Motor Corporation Limited. It is expected that the demand will cross 4,000 units. This surge in demand is attributed to China-Pakistan Economic Corridor (CPEC) and improving law and order situation in the country.

However, on the other hand, the tractor sector faced severe challenges during 2015. An official said that the year 2015 was a challenging one for the tractor industry. “We faced steep decline in sales, stringent anti-industry measures by the government, low production, new taxes, closure of plants, layoffs, threat of import of tractors, and other issues.”

He said that the provincial governments of Sindh and Punjab did not initiate their tractor schemes, which piled up further inventory of CBU’s entailing huge cost of inventory, and then imposed new taxes that brought the industry to the edge of temporary closure and perhaps layoffs as well. It is said that the Punjab government diverted the tractor scheme fund into its Orange Line train.

There are two major factors for the decline in the sales of tractors. Firstly, the farmers faced a setback in all major and minor crops including cotton, rice, and sugarcane, and their prices declined.

The second reason was the delay in the launch of the provincial governments’ tractor subsidy schemes. It is pertinent to mention that Punjab and Sindh governments in Budget FY16 announced a subsidy of 25,000 and 29,000 tractors.  

He added the federal government through the introduction of SRO-1178(I) 2015 imposed 1 percent tax on the imported raw materials, and this tragically included the tractor Industry, though it falls under agriculture. On top, the Sindh government has started sending circulars, demanding to impose 10 percent surcharge/tax on the commission paid to the dealers. 

The year 2015 remained stagnant for the motorcycle segment as well. Chinese motorbike assemblers have shrunk 70 percent, now there are only four to five major bike assemblers, whereas others are assembling very small numbers. However, Honda Atlas launched a new model which boosted the sale by 10 percent. The motor bike sales are to hit 1.8 million units at the end of 2015.


Tahir Saeed analyst at Topline Research forecasted local car sales to grow at 13 percent in FY16 to reach 203,941 units.

The volume and profitability is expected to decline in 2016. This lower growth is due to the completion of taxi scheme in February 2016 and also because rupee appreciation against Japanese yen and US dollar in 2015 might not support it in the new year. The hype of the new model Toyota Corolla will fade away, and decline in Civic volumes in anticipation of new model is expected to hit the market in July 2016.

The advantages of international steel and other commodity prices might not be there in 2016.

However, the local auto assembler might get some cushion in the profitability of the auto assemblers in the new auto policy, as the government has proposed decline in the duty of CKD from 32.5 percent to 30 percent. But that is relevant, if the auto policy is approved.