Auto sales weaken ahead of budget, down 11 percentMoM
May 18, 2012
In hope of relaxation on imported vehicles in the upcoming Federal Budget, local auto sales in April 2012 witnessed a decline of 11 percent month-on-month (MoM).
Nevertheless, the subsidized Yellow Cab scheme along with strong growth in home remittances resulted in a growth of 6 percent year-on-year (YoY). Resultantly, sales growth during 10MFY12 clocked in at 14 percent YoY largely inline with sector analysts full year growth estimate of 17 percent.
Indus Motors (INDU) defied industry’s sequential decline in April, as it emerged as the only manufacturer to post positive growth at 16 percent MoM. Pak Suzuki (PSMC) sales declined by 21 percent MoM.
Industry sales falls 11 percent MoM in April; INDU’s up 16 percent
Whilst the overall industry sales in April 2012 declined by 11 percent MoM in anticipation of relaxation on imported vehicles in the upcoming budget; INDU posted an impressive growth of 16 percent MoM. The rise in manufacturer’s sales was largely driven by an increase of 17 percent MoM in sales of Corolla. On the other hand, PSMC’s sales declined by 21 percent MoM, which analysts also attribute to the ban imposed on CNG fitted vehicles by the government.
However, the subsidized Yellow Cab scheme provided by the Punjab government and strong growth in home remittances (up 20 percent YoY in 10MFY12) resulted in a 6 percent YoY growth over April 2011.
Uncertainty prevailing over relaxation on imported vehicles in the upcoming Federal Budget and the new auto policy (AIDP-2) to keep investor cautious in the sector, despite the sector’s impressive earnings growth (118 percentYoY in Jan-Mar 2012). Rupee-yen parity has also seen a slight reversal, rising to Rs 1.14 from its recent low of Rs 1.08.
On the other hand All Pakistan Motor Dealers Association (APMDA) demanded of the government to allow commercial imports of used vehicle of up to 10 years of age in the forthcoming budget to provide relief to the common customers.
In its budget proposals sent to the Finance Ministry, APMDA Chairman HM Shahzad said the import of vehicle up to 10 years old would benefit the local car customers but also generate huge revenues for the government.
“Local dealers are now importing three years old used cars as per government policies with one percent depreciation cost,” he said. “They have huge potential to import all kinds of vehicles from different countries including India.”
In a letter, he said, “The local assemblers are enjoying the monopolistic and consumer-unfriendly benefits of a ban of used vehicles import for the last many years. They fleece common people in the shape of 100 percent advance payment at the time of booking of a car and the delivery of a car takes three to six months. As a result of delays in car delivery, the black marketers charge a hefty premium ‘on money’ from innocent people.”
He said the local assemblers increase the prices for their car as and when they desire, resulting in significantly greater financial burden for the common man and profits for the auto assemblers than our neighboring countries.
He said the promise of the local assemblers for levels of deletions have also not been achieved despite the passage of many years.
He said in the letter that regulatory duty income’s decline has been a huge revenue loss, which if verifiable from all the collectorates of customs. He pointed out a problem faced due to the issuance of a notification (CGO 01/09 dated January 13, 2009), which has deprived of the legal, social and ethical right to obtain the depreciation at 2.0 percent per month on old and used vehicles of above 1800cc imported by overseas Pakistanis.
He said the local assemblers are not assembling cars of above 1800cc and if the government allows the local authorised dealers to import above 1800cc cars, it would not hurt the local assemblers or industry.
The budget proposals said the government should impose a fixed rate of duty on the import of used vehicles of engine capacity of above 1800cc. The government should check the revenue loss suffered due to arbitrary fixing of import demand should help to eliminate the variation of taxes in all the ports of the country.
Contrary to APMDA, local assemblers are of the view that in order to safeguard the current investment of Rs 92 billion and employment of 192,000 in local auto industry, the imports of used cars should be discouraged like in other Asian countries. An official from local assemblers said that relaxation in policy should be reversed back to three years and 1.0 percent allowable depreciation, with maximum cap at 36 percent.
As per the current trends of the industry, the volume of the auto market in the next fiscal year is expected to remain almost equal to the current level with projected sales of 220,000 vehicles, including 160,000 locally assembled units.
He further said that the government should clarify its aims and objectives and must decide whether they want to make Pakistan a trade-based country or a country with heavy manufacturing industry. Therefore, the automobiles will also set their strategy accordingly and work on the same model that is defined by the government.
There is no problem with automobile companies to start imports of cars and light commercial vehicles from its originating countries if the government decides to be trading economy, but policymakers should think about the industrialisation and its trickle down effect on the economy and society, he remarked.
The local industries should be promoted for country’s welfare because Pakistan is not a country with huge foreign reserves and it needs different avenues of productions where hundreds and thousands of people will be provided employments and business opportunities, he concluded.
He said that the sustainable policy and protection to local industry will lead to significant development, investment and employment generation in the automobile industry, which not only has the potential to meet the demand of local market but also export its cars to Middle East and African countries.