Automobile industry: Local carmakers struggle despite restricted imports

Revenues and profits are down in the third quarter of 2012, largely due to a slump in consumer demand.

KARACHI:

They lobbied hard for it. The government caved in and gave them exactly what they wanted. But local car assemblers are still unlikely to see revenues or profits increase substantially, despite the government tightening restrictions on cheaper, imported cars.

The government has reduced the maximum age allowed for an imported car, from five years to three years, a longstanding demand of the local car assembly industry dominated by Pakistani affiliates of Japanese carmakers. In early 2011, the government had allowed car importers to sell used cars that were up to five years old. In theory, the government’s latest measure should benefit local assemblers, but most industry experts who spoke to The Express Tribune, including officials at the car assemblers themselves, said that sales of locally assembled cars are unlikely to increase much.

The relaxation of the import restrictions had resulted in a surge in imported used car sales, which rose 162% during the fiscal year ending June 30, 2012 to over 55,000 cars, up from just over 21,000 the year before. But 2012 was a good year for car sales, and even local car assemblers saw their sales rise by 23% to just over 153,000 vehicles. The upcoming fiscal year 2013, however, looks to be a different story.

H M Shahzad, chairman of the All-Pakistan Motor Dealers Association, a car importers’ trade group, estimates that Pakistan imported nearly 22,000 vehicles over the first four months of fiscal 2013. He expects that the country may import another 15,000 vehicles by the end of the fiscal year in June 2013 – a smaller number of imported cars than last year, but still strong enough to dent the sales of locally-assembled cars.

Local car assemblers admit they have a competitiveness problem. “Even after the cut in the age limit of imported used cars, local carmakers will continue to face difficulty in increasing their sales in fiscal 2013 owing to the large number of imported cars in the pipeline,” said Parvez Ghias, the CEO of Indus Motor Company, the Pakistani affiliate of global auto giant Toyota.

The first quarter of fiscal 2013 has already not been good for local assemblers, with sales dropping by 25% to just under 37,200 units, according to data compiled by the Pakistan Automotive Manufacturers Association. Industry experts expect the trend to continue. Used car imports accounted for 26% of the total number of cars sold in Pakistan last year, and the decline in locally assembled vehicles has led many experts to conclude that the ratio for fiscal 2013 will be similar.

Dent to profitability

The financial statements of all three major car assemblers reveal that revenues and profits soared for both Suzuki and Toyota, though Honda had an even more miserable year than before.

All three car makers have different ends to their financial years, so, for a fair comparison, The Express Tribune recalculated their financial results so as to ascertain profits and revenues over the fiscal year ending June 30, 2012. The results were interesting.

Suzuki saw its gross revenues jump over 49% to just over Rs79 billion during fiscal 2012. Profits expanded eight-fold to reach almost Rs1.9 billion during that period. Toyota also had a good year, with gross revenues expanding over 22% to Rs91.6 billion, and profits grew by nearly 57% to reach Rs4.3 billion.

During the first quarter of fiscal 2013, however, the picture reversed itself. Revenues for the quarter from July through September at Suzuki are down more than 25% and the company swung from a profit to a loss. At Toyota, revenues were down more than 21% and profits slid more than 26% compared to the same period the previous year. Honda had not announced its results at the time this report was compiled.

For the current year, though, both Honda and Suzuki have outperformed the market. While the benchmark KSE-100 index is up 43.1% since the beginning of the calendar year 2012, Pak Suzuki is up 50.9% and Honda Atlas is up 79.1%. Toyota is up a more muted, but still reasonable 32.4%.

Published in The Express Tribune, December 3^rd, 2012.