Ray of hope for beleaguered auto sector

Car sales rise 35% month-on-month, hit 20,000 units in Nov

KARACHI:

There is a lot of hope in the beleaguered auto sector that has picked up some pace as vehicle sales have improved for the second consecutive month, though fears of a slowdown in the coming months still exist.

Pakistan’s car sales including sales of non-Pama (Pakistan Automotive Manufacturers Association) members came in at around 20,000 units in November 2022, up by 35% month-on-month, primarily due to the availability of completely knocked down (CKD) parts, which led to a higher production of vehicles, said Topline Research auto sector analyst Sunny Kumar.

“The growth is temporary until the government receives foreign loans and the policy rate drops below 12%,” remarked Pakistan Association of Automotive Parts and Accessories Manufacturers’ (Paapam) former chairman Abdul Rehman Aizaz.

The restrictions imposed on the import of CKD parts should be lifted for a smooth sailing. “At present, previous bookings are supporting the industry. Once they taper off, sales will come down,” he pointed out.

Auto sales were down 2% year-on-year in November, which took five-month sales to 66,458 units, down 39% from 108,635 units in the same period of FY22 amid escalating car prices, expensive auto financing and the low purchasing power of consumers, according to a report of Topline Securities.

Pak Suzuki Motor Company (PSMC) reported a 55% month-on-month increase in sales that reached 12,400 units in November, followed by a notable increase of 38% recorded by Honda Atlas Cars (HCAR) that sold 1,973 units in the month.

“PSMC is the actual outlier in this pool of data sample owing to its backlog of CKDs (completely knocked downs),” said Insight Securities’ auto sector analyst Asad Ali.

Auto sales increased in November possibly due to the improvement in supply and clearance of some backlog. However, on a year-on-year basis, sales increased by only 1%, which showed that the sector was still absorbing the shocks of economic slowdown, he observed.

“As demand goes down, ‘own’ money (premium) has also dropped from Rs300,000 to Rs100,000,” he said.

Indus Motor (INDU) posted a 4% month-on-month decline in sales that reached 3,242 units in November against 3,374 units in October, said Topline Securities.

Hyundai sales were down 9% month-on-month while sales of Sonata fell 45% and those of Elantra dipped 25%.

In the tractor category, Al Ghazi Tractors (AGTL) saw a 65% month-on-month decline in sales that hit 137 units in November, followed by Millat Tractors (MTL) whose sales came in at 1,103 units, down 27%.

This took the total tractor industry sales to 10,498 units in five months of fiscal year 2022-23, down 52% year-on-year due to floods, reduced buying strength of consumers and higher prices.

Likewise, Pakistan’s bike sales were down 3% month on month and 34% year on year in November 2022. Atlas Honda (ATLH) recorded sales of 92,000 units, down 3% month on month and 28% year on year.

Besides, sales of trucks and buses were up 5% month on month, but down by 36% year on year to 342 units in November 2022. This took the five-month sales to 1,661 units, down 39% year on year primarily due to a drop in transportation activity and a slump in the overall economy.

“Auto sales are displaying impressive improvement on a monthly basis due to the improvement in production as the original equipment manufacturers (OEMs) have managed to procure imported raw material,” said auto analyst Arsalan Hanif.

“Although they have a huge backlog of orders, there is intense problem of procuring raw material. We believe auto sales will drop in upcoming months until the government allows them to import raw material,” he added.

“It’s not actually the sector is picking up pace. Companies are delivering pending orders for which they have taken advances. Once those cars are delivered, sales will re-continue its downward trajectory,” Ismail Iqbal Securities’ analyst Muqeet Naeem believed.

Published in The Express Tribune, December 13^th, 2022.

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