Pakistan's auto sector anticipates recovery in vehicle sales

Analysts expect low interest rate, improving economic cues to boost car demand

KARACHI:

Given the projected improvement in macroeconomic environment coupled with lower interest rates, the automobile sector of Pakistan has voiced hope of recovery in vehicle sales in fiscal year 2020-21.

In an analyst briefing on Thursday, Honda Atlas Cars’ management anticipated car sales to continue following a rising trend in FY21 on back of improved economic activity and monetary easing.

However, the company does not intend to move to second shift production in near term to meet high demand because it plans to optimally manage production levels to meet demand, stated a Topline Securities report.

“It is natural for automobile sector to grow in the coming months because it had hit ground level few months earlier,” said JS Global analyst Ahmed Lakhani. He recalled that for the first time in April 2020, the automobile sector of Pakistan recorded zero sales of passenger cars while the following month, May 2020, registered only 25% sales growth compared to the same month of last year.

“So, we can say that these two months recorded negligible growth in the sector,” he said. “If we compare the performance of the rest of the 10 months of previous fiscal year, it is still worst in history therefore car sales will witness natural growth during this fiscal year.”

He added that Hyundai Nishat recently launched Tucson, which gained a lot of traction. Citing figures, he revealed that the company got around 2,700 orders and it had to stop booking of new orders which shows that demand is building up.

He was of the view that demand would grow regardless of the Covid-19 hit economic situation of the country.

“However, these numbers do not represent the whole picture of Pakistan’s automobile sector,” said the analyst. “Even the buyer of low end Alto 600cc has to be a high income earner due to persistent rise in car prices in the past.”

He regretted that car ownership rate remained low in Pakistan despite a booming population of 210 million.

Only 40,000 to 50,000 Alto models are sold annually in Pakistan, he said.

“One of the reasons why car sales plunged during Covid-19 outbreak was because people wanted to retain savings ahead of uncertain times,” he said. “Now, lower interest rates have turned car financing cheaper which is expected to boost car sales.” Taurus Securities analyst Nabeel Dochki termed growth in auto sector inevitable in wake of low auto financing. According to the State Bank of Pakistan, auto financing grew 1.5% in June.

Published in The Express Tribune, August 14^th, 2020.

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