A mix of factors hurt local car sales

Analysts cite used car imports, discontinuation of some models.

KARACHI:

Why have local car sales been on a declining trend? Is it because of a surge in import of used cars or are there some other reasons?

Import data suggests that used cars have definitely dented sales of locally produced vehicles, but the fast penetration of imported cars is partly helped by the local industry itself by discontinuing production of some models, analysts say.

A comparison of data of the last three months shows that the number of imported used cars is equal to 49% of cars produced locally. From July to September, around 14,500 cars have been imported while domestic production in the same period stands at 29,669 units.

In the previous fiscal year (2011-12), average monthly production of local cars was far better than the first three months of the current fiscal year (2012-13).

In 2011-12, sales of locally assembled cars surged by 23% to 157,325 units compared with preceding year’s 127,944 units. The share of imported cars also increased phenomenally in 2011-12 as more than 55,000 cars reached the country, more than three times the import of 17,000 cars a year ago.

In the three months of the current fiscal year, car importers have visibly taken the lead. Though average monthly sales of imported cars are similar to the monthly average of last year ie around 4,500 cars, local carmakers are at least 3,000 cars short of the average monthly sales of 13,000 in the previous year.

Talking to The Express Tribune, JS Global Capital analyst Atif Zafar said the local industry was not launching new models while the discontinuation of Daihatsu Cuore and Suzuki Alto also gave a chance to small segment imported cars to grab a big market share.

“The main reason for the declining sales of local cars is not just the discontinuation of Cuore and Alto,” said Zafar. “It is also the regular increase in prices of local cars and the wider choices that customers enjoy in imported cars that have dented the sale of local cars.”

Khalid bin Waleed Road and its adjoining streets – the main markets for used cars situated in the heart of Karachi – are filled with newly imported cars with two to six models in each engine category including 660cc, 800cc, 1,000cc, 1,300cc, 1,500cc and 1,800cc.

With the discontinuation of Cuore (800cc) and Alto (1,000cc), there are only two local cars Suzuki Mehran and Cultus in 800cc and 1,000cc categories in production. However, there are over a dozen imported models of Suzuki, Toyota, Honda, Nissan and Mitsubishi ranging from 660cc to 1,000, which are giving a tough time to the local carmakers.

Last year, 45% of 55,000 imported cars were in the economy segment (engine capacity of 1,000cc or less), highlighting the fact that the local producers need to launch new economy cars if they want to stay in competition.

Despite concerns about availability of parts and vehicle maintenance, a continuous surge in used car sales in the country suggests that customers prefer Japan-assembled cars to local versions.

Topline Securities on Thursday said imported used cars were expected to continue hitting local car sales in the next three months from October to December.

However, the report stressed that the Customs General Order (CGO) – a recent order from the Federal Board of Revenue (FBR) which cut depreciation limit on imported cars – would change the situation a little bit as it could hurt sales of imported cars.

The report said the imported cars of 1,300cc and above category were in direct competition with Toyota Corolla variants and other local cars.

All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad said the CGO caused an increase in import duty on all imported cars from Rs50,000 to Rs750,000, depending on the engine capacity of vehicles.

Car importers say the CGO has certainly increased the retail prices of imported cars, but the affect on their sales is yet to be seen.

Published in The Express Tribune, October 13^th, 2012.