Auto sector: Manufacturers race ahead amid bumps
Sales stand strong despite relaxation in car import policy.
KARACHI:
The year 2011 has been a sweet and sour period for the country’s automobile industry, which was full of challenges and exciting developments. Though car prices rose sharply amid a dispute with the government over relaxation in used car import policy, the industry recorded strong sales compared to the previous year.
Auto manufacturers faced a setback early in the year as the government increased the age limit for imported second-hand cars to five years from three years apparently to punish the industry, for failing to reduce prices.
However, the age relaxation brought cheers from car importers. All Pakistan Motor Dealers Association Chairman HM Shehzad says over 25,000 cars were expected to be imported by the end of December 2011, up from 15,000 the previous year. Now car manufacturers are worried about another blow at the hands of importers, who are lobbying for permission for import of 10-year-old cars.
JS Global Capital analyst Atif Zafar said after the disturbing start in January, the auto industry got good news in the budget for 2011-12 which abolished 2.5 per cent special excise duty and cut general sales tax by 1%.
“But during the year, the government also introduced a policy for new entrants into the automobile industry, triggering fears among existing players that the policy will encourage South Korean and Chinese carmakers, which can hurt their interests,” he added. Zafar was of the view that the new entrant policy was aimed at pressing carmakers to reduce prices, but they argued that rupee’s depreciation and the rising cost of production precipitated the increase in prices.
Besides the sharp depreciation of the rupee against Japanese yen and US dollar, the floods in Thailand in the second half of the year disrupted supply of spare parts for local companies. Industry officials expect annual car sales to rise above 170,000 units by the end of December, but will not hit 180,000, the historic high struck in fiscal year 2006-07. Some point out that the growth is more crucial this time unlike 2006-07, when major support came from banks’ car financing. Sales of Pak Suzuki Motor Company in the first nine months of calendar year 2011 grew 17% compared to the previous year despite an average increase of 7.5% in prices. The high sales and prices substantially supported the company’s bottom-line, which grew 73% year-on-year to Rs672 million from January to September 2011.
Analysts believe that 2012 will not give an easy ride to the carmakers following the government’s ban on import of CNG kits, which will hurt sales. In addition to this, the rupee is continuously depreciating, which will increase production cost and add to the woes of carmakers.
Published in The Express Tribune, December 31st, 2011.
The year 2011 has been a sweet and sour period for the country’s automobile industry, which was full of challenges and exciting developments. Though car prices rose sharply amid a dispute with the government over relaxation in used car import policy, the industry recorded strong sales compared to the previous year.
Auto manufacturers faced a setback early in the year as the government increased the age limit for imported second-hand cars to five years from three years apparently to punish the industry, for failing to reduce prices.
However, the age relaxation brought cheers from car importers. All Pakistan Motor Dealers Association Chairman HM Shehzad says over 25,000 cars were expected to be imported by the end of December 2011, up from 15,000 the previous year. Now car manufacturers are worried about another blow at the hands of importers, who are lobbying for permission for import of 10-year-old cars.
JS Global Capital analyst Atif Zafar said after the disturbing start in January, the auto industry got good news in the budget for 2011-12 which abolished 2.5 per cent special excise duty and cut general sales tax by 1%.
“But during the year, the government also introduced a policy for new entrants into the automobile industry, triggering fears among existing players that the policy will encourage South Korean and Chinese carmakers, which can hurt their interests,” he added. Zafar was of the view that the new entrant policy was aimed at pressing carmakers to reduce prices, but they argued that rupee’s depreciation and the rising cost of production precipitated the increase in prices.
Besides the sharp depreciation of the rupee against Japanese yen and US dollar, the floods in Thailand in the second half of the year disrupted supply of spare parts for local companies. Industry officials expect annual car sales to rise above 170,000 units by the end of December, but will not hit 180,000, the historic high struck in fiscal year 2006-07. Some point out that the growth is more crucial this time unlike 2006-07, when major support came from banks’ car financing. Sales of Pak Suzuki Motor Company in the first nine months of calendar year 2011 grew 17% compared to the previous year despite an average increase of 7.5% in prices. The high sales and prices substantially supported the company’s bottom-line, which grew 73% year-on-year to Rs672 million from January to September 2011.
Analysts believe that 2012 will not give an easy ride to the carmakers following the government’s ban on import of CNG kits, which will hurt sales. In addition to this, the rupee is continuously depreciating, which will increase production cost and add to the woes of carmakers.
Published in The Express Tribune, December 31st, 2011.