Rupee’s free fall forces Indus Motor to stop taking orders

Company says it is assessing impact, will resume booking with announcement of new prices

KARACHI: Indus Motor Company, which assembles and manufactures Toyota cars in Pakistan, has stopped taking orders because of this week's sharp depreciation of the rupee against the US dollar, which makes import of auto parts expensive and increases the cost of production.

According to the company, the depreciating rupee has resulted in an increase in its cost on account of freight charges, duties and taxes on imported components and raw material for local parts manufacturing, which forced the company to halt vehicle booking.



"The company is in the process of evaluating the impact. Once the situation stabilises, we will resume our order bookings with the announcement of new prices," the company said on Friday.

It has also announced that terms and conditions of its provisional booking orders state that the price to be paid by the customer is the one prevailing at the time of delivery of vehicle, for both partial and full payments.

It means that the company will be charging new prices from customers though they have booked cars prior to the price hike.

Recently, the Competition Commission of Pakistan (CCP) recommended to the government that car prices must not change after a vehicle was booked.

"Once customers book a vehicle, whether through partial or full payment, they have a reasonable expectation that any future price increase will not be applied to them, particularly when they have to wait several months to get the delivery of vehicles for no fault of their own," the CCP stated in its report.

In the notice, Indus Motor said deliveries scheduled for the current month of October, for which full payments had been received, would continue at current retail prices.

In historic drop, rupee weakens 7.54% against US dollar

According to JS Research analyst Ahmed Lakhani, the expected hike in car prices will reduce sales volume of the industry.

"Subsequently, it will reduce profitability of the industry, which has already been under pressure due to several reasons including intermittent price increases during the year. Suzuki has been and will be the worst-hit automobile company since it deals in low-priced vehicles that are highly price sensitive," he said.

Indus Motor's stock price dropped Rs20.45 and stood at Rs1,048.36 at the day's close.

According to Lakhani, Toyota shares were being traded at around Rs1,750 in December 2017 when the rupee started to depreciate. Now, the stock has lost around 35% of its value. Things were not different for Suzuki and Honda either.

Industry sales have also dropped significantly due to the government's ban on the purchase of new cars by non-filers of tax returns. According to a report, booking orders have fallen 30% due to the ban.

Moreover, increase in the policy rate, which has made auto financing expensive, is also taking its toll on vehicle demand. "There are tougher days ahead for the industry," commented Lakhani.

Published in The Express Tribune, October 13^th, 2018.

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