Automobile sector:
HISTORY: It was in early 50s that Pakistan saw its first vehicle in the form of Bedford truck. At that time the services and manufacturing sector had almost no contribution towards the economy as Pakistan's economy was completely agrarian and regularised.
After de-regularisation the industry took to the path of growth. Major developments in the sector came in mid 80's and early 90 when major Japanese car makers entered the Pakistani market. Over the years the sector saw many ups and downs and came out to become one of the biggest engineering sectors in Pakistan. With the arrival of Japanese car makers, Pakistan saw technology, job creation and investment coming into Country. The Japanese cars being less costly and fuel efficient are in majorities' reach and therefore have dominated the Pakistani market.
At present the auto sector of Pakistan is manufacturing/assembling all kinds of vehicles from trucks, buses and tractors, to passenger cars and two wheelers. A sizeable portion of the auto industry consists of the vendors and OEM's, the allied industry developed in line with the main auto industry. The significance of auto sector can be seen by the fact that it is contributing more than five percent to the national exchequer and is directly employing more than 200,000 people.
CURRENT SITUATION AND THREATS The auto sector faced a big blow in 2008-09 when the world saw its biggest financial crisis, sales fell to 82,844 units. However Pakistani auto and allied sector quickly took to the path of recovery. The good agriculture support prices set up by the government and the high remittances spurred in growth in the automobile industry. However in two years' span the industry grew at an average growth rate of 26.5 percent and sales reached a level of 127,944 units in FY11. In the first eight months of FY12 the sales for passenger cars stood at 98,252 units.
The biggest engineering sector of Pakistan however has to face a lot of problems. The debilitating power crisis is the biggest concern of manufacturing sector. In addition, rising fuel price has pushed up the cost of production. The devaluation of rupee against Yen, which has spiked up the input costs and foreign exchange risk, is also of the utmost concern for the sector, because of its dependency on the import of critical parts from Thailand, Japan, and Korea etc.
Apart from these costs auto-sector also has to face the inconsistent and irrational government policies. Furthermore, overnight changes, lack of long term vision and thorough research before policy division and improvisation is also impeding growth of the sector.
In addition to the unfavourable import policies and almost no efforts by the government to stop the influx of smuggled auto parts, which were already putting the sector under immense pressure, now the industry, especially the allied sector can face stiff competition from the India due to the MFN status. Secondly the favourable new entrant policy is threatening the sector, as the existing players fear that Chinese manufacturers would come in and take a sizable portion of the market.
SECTOR WISE PERFORMANCE PASSENGER CAR SALES The passenger car segment went against all odds in 8MFY12 and managed to grow by 17 percent as compared to the same period last year. The ever rising remittances and purchases made under the yellow cab scheme were the main contributors to the spike in demand.
Up till now the 1000cc category has been leading the growth in FY12, with a growth rate of 35 percent over the same period last year. The main growth driver within this category is Suzuki's Cultus, which managed to grow by 38 percent. Following this segment was the "below 1000cc category" with a growth rate of 29 percent. The only shining star in the 1300cc and above segment was Suzuki's Swift which has gained immense customer confidence and managed to grow by 86 percent in 8FY12 over the same period last year.
Company wise Suzuki led the growth with a rate of 35 percent in 8MFY12, over the same period last year. The growth however, includes the purchases made under the yellow cab scheme of the Punjab government. Over the same period Indus motors grew at a rate of four percent.
FY12 was the most miserable year for Honda, first Honda's Japan plant was shut down due to tsunami and then Honda's Thailand plant was shut down due to flooding. The unavailability of components which Honda Pakistan procures from overseas plants resulted in three months of complete suspension in Honda Pakistan.
MOTORCYCLES AND THREE-WHEELER SALES The motorcycle and three-wheeler segment grew at a steady rate of roughly five percent in 8MFY12, over the same period last year. A total of 551,677 units were sold in the 8MFY12, out of which 70 percent of the sales were made by Honda Atlas.
During the period under review three-wheeler also witnessed healthy growth, leading the rickshaw category was the "Qinqqi three wheeler" which grew by 50 percent in 8MFY12, compared to the previous year.The affect of good rural/farm incomes is reflected in the sales of two and three wheelers category. Earlier, while talking to BR research an industry member said that "majority of the demand for motorbikes comes from rural areas, and the primary reason why the bike manufacturers didn't experienced a slowdown during the recent financial slowdown was the higher support prices." He added, "the higher support prices are and would continue to benefit the two wheelers industry in the coming time".
Hence, the affect of better rural/farm incomes would be reflected in the sales of two and three wheelers category. Another positive sign for the industry is the recent upwards revision of wheat support prices yet the higher input costs (urea, DAP) are a ruling threat for the industry.
TRACTORS FY12 has been the most turbulent year ever in the history of tractor industry. The total tractor sales in the 8MFY12 have been roughly 30,000 units, this is a 52 percent decline compared to the 45,500 units sold in the same period last year.
The decline in sales is attributed to the unclear tax policy of the government. Analysis shows that the decline did not result due to the imposition of sales tax. In addition according to industry sources the tractor manufacturers saw a quick decline in demand when in June the President of Pakistan announced that farmers with landholding of less than 12.5 acres would be exempted from payment of sales tax.
Sources tell that a committee was formed to look into this matter. The sales in March 2011 when this tax was imposed were 5,032 units but in July (month after president's announcement) 1,036 units were sold as people anticipated complete elimination of the sales tax.
CONCLUSION Despite quick recovery, serious efforts are needed to bring the auto sector to the pre-recessionary level. Special revision is needed on the used vehicles import policies, and the new entrant policy. The government should support the new entrants but not at the expense of the existing players. If these issues are taken into consideration with the consultation of all the stakeholders then the auto sector would surely come back to the pre-recessionary level.
HISTORY: It was in early 50s that Pakistan saw its first vehicle in the form of Bedford truck. At that time the services and manufacturing sector had almost no contribution towards the economy as Pakistan's economy was completely agrarian and regularised.
After de-regularisation the industry took to the path of growth. Major developments in the sector came in mid 80's and early 90 when major Japanese car makers entered the Pakistani market. Over the years the sector saw many ups and downs and came out to become one of the biggest engineering sectors in Pakistan. With the arrival of Japanese car makers, Pakistan saw technology, job creation and investment coming into Country. The Japanese cars being less costly and fuel efficient are in majorities' reach and therefore have dominated the Pakistani market.
At present the auto sector of Pakistan is manufacturing/assembling all kinds of vehicles from trucks, buses and tractors, to passenger cars and two wheelers. A sizeable portion of the auto industry consists of the vendors and OEM's, the allied industry developed in line with the main auto industry. The significance of auto sector can be seen by the fact that it is contributing more than five percent to the national exchequer and is directly employing more than 200,000 people.
CURRENT SITUATION AND THREATS The auto sector faced a big blow in 2008-09 when the world saw its biggest financial crisis, sales fell to 82,844 units. However Pakistani auto and allied sector quickly took to the path of recovery. The good agriculture support prices set up by the government and the high remittances spurred in growth in the automobile industry. However in two years' span the industry grew at an average growth rate of 26.5 percent and sales reached a level of 127,944 units in FY11. In the first eight months of FY12 the sales for passenger cars stood at 98,252 units.
The biggest engineering sector of Pakistan however has to face a lot of problems. The debilitating power crisis is the biggest concern of manufacturing sector. In addition, rising fuel price has pushed up the cost of production. The devaluation of rupee against Yen, which has spiked up the input costs and foreign exchange risk, is also of the utmost concern for the sector, because of its dependency on the import of critical parts from Thailand, Japan, and Korea etc.
Apart from these costs auto-sector also has to face the inconsistent and irrational government policies. Furthermore, overnight changes, lack of long term vision and thorough research before policy division and improvisation is also impeding growth of the sector.
In addition to the unfavourable import policies and almost no efforts by the government to stop the influx of smuggled auto parts, which were already putting the sector under immense pressure, now the industry, especially the allied sector can face stiff competition from the India due to the MFN status. Secondly the favourable new entrant policy is threatening the sector, as the existing players fear that Chinese manufacturers would come in and take a sizable portion of the market.
SECTOR WISE PERFORMANCE PASSENGER CAR SALES The passenger car segment went against all odds in 8MFY12 and managed to grow by 17 percent as compared to the same period last year. The ever rising remittances and purchases made under the yellow cab scheme were the main contributors to the spike in demand.
Up till now the 1000cc category has been leading the growth in FY12, with a growth rate of 35 percent over the same period last year. The main growth driver within this category is Suzuki's Cultus, which managed to grow by 38 percent. Following this segment was the "below 1000cc category" with a growth rate of 29 percent. The only shining star in the 1300cc and above segment was Suzuki's Swift which has gained immense customer confidence and managed to grow by 86 percent in 8FY12 over the same period last year.
Company wise Suzuki led the growth with a rate of 35 percent in 8MFY12, over the same period last year. The growth however, includes the purchases made under the yellow cab scheme of the Punjab government. Over the same period Indus motors grew at a rate of four percent.
FY12 was the most miserable year for Honda, first Honda's Japan plant was shut down due to tsunami and then Honda's Thailand plant was shut down due to flooding. The unavailability of components which Honda Pakistan procures from overseas plants resulted in three months of complete suspension in Honda Pakistan.
MOTORCYCLES AND THREE-WHEELER SALES The motorcycle and three-wheeler segment grew at a steady rate of roughly five percent in 8MFY12, over the same period last year. A total of 551,677 units were sold in the 8MFY12, out of which 70 percent of the sales were made by Honda Atlas.
During the period under review three-wheeler also witnessed healthy growth, leading the rickshaw category was the "Qinqqi three wheeler" which grew by 50 percent in 8MFY12, compared to the previous year.The affect of good rural/farm incomes is reflected in the sales of two and three wheelers category. Earlier, while talking to BR research an industry member said that "majority of the demand for motorbikes comes from rural areas, and the primary reason why the bike manufacturers didn't experienced a slowdown during the recent financial slowdown was the higher support prices." He added, "the higher support prices are and would continue to benefit the two wheelers industry in the coming time".
Hence, the affect of better rural/farm incomes would be reflected in the sales of two and three wheelers category. Another positive sign for the industry is the recent upwards revision of wheat support prices yet the higher input costs (urea, DAP) are a ruling threat for the industry.
TRACTORS FY12 has been the most turbulent year ever in the history of tractor industry. The total tractor sales in the 8MFY12 have been roughly 30,000 units, this is a 52 percent decline compared to the 45,500 units sold in the same period last year.
The decline in sales is attributed to the unclear tax policy of the government. Analysis shows that the decline did not result due to the imposition of sales tax. In addition according to industry sources the tractor manufacturers saw a quick decline in demand when in June the President of Pakistan announced that farmers with landholding of less than 12.5 acres would be exempted from payment of sales tax.
Sources tell that a committee was formed to look into this matter. The sales in March 2011 when this tax was imposed were 5,032 units but in July (month after president's announcement) 1,036 units were sold as people anticipated complete elimination of the sales tax.
CONCLUSION Despite quick recovery, serious efforts are needed to bring the auto sector to the pre-recessionary level. Special revision is needed on the used vehicles import policies, and the new entrant policy. The government should support the new entrants but not at the expense of the existing players. If these issues are taken into consideration with the consultation of all the stakeholders then the auto sector would surely come back to the pre-recessionary level.
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