Behind the car sales numbers

Sales of passenger cars for the 1QFY12 showed a 27 percent increase when compared to the 1QFY11. However, a deeper dive into the numbers reveals that the growth in sales may not be as impressive as it appears at first sight. Pakistan Suzuki Motor Company (PSMC) saw its sales jump 49 percent higher in 1QFY12 as compared to the same period last year, followed by Honda at 11.4 percent and Indus at 4 percent. This gigantic increase in sales of passenger cars by PSMC is not due to an increase in demand but due to the postponement of purchases from the last month of FY11 to the first month of the current fiscal year. This deferment is due to the anticipated decrease in the prices of passenger cars due to relaxation of sales tax from 17 to 16 percent and abolishment of 2.5 percent special excise duty on the same by the government. The delay in purchases is evident from the drop in total passenger-car sales by about 41 percent in June 2011 (6,489 units) from the years average monthly sales of 11,041 units. The largest increase in sales was experienced by Suzuki Mehran with around 57 percent more of the model hitting the roads over this period. Purchases under the yellow cab scheme added 19 percent growth to the tally while and roughly 29 percent is due to the deferment of purchases leaving behind a 9 percent increase. The case is the same for Toyota Corolla, Suzuki Cultus and Bolan, which had all seen abnormally low sales in the last month of FY11. Passenger-car sales witnessed a modest increase in sales, mainly backed by good agriculture incomes due to good support prices set by the government as well as strong commodity prices in local and international markets. Successive increases in sales of motorcycles and three wheelers also hint at rising agri-incomes. Sales of motorbikes and rickshaws jumped by 17 percent during the first quarter of the current fiscal year, as compared to the same period of last year. The biggest contributor to higher sales of two wheelers was Honda Motorcycles, which experienced 20 percent increase in sales. Qingqi three wheelers saw an increase of around 86 percent from 2,787units in 1QFY11 to 5,193 units in 1QFY12. Meanwhile, the biggest losers were the tractor manufacturers who saw a decrease in sales of around 70 percent in 1QFY12 as compared to the same period of last year. This decrease is due to the common sentiment amongst buyers that the government would take back its decision to impose 16 percent sales tax on tractors which would eventually decrease the unit price of tractors by Rs.100,000- 200,000. Overall, the auto sector is experiencing modest growth driven mainly by surging rural demand. This increase is evidence that the economy is slowly picking up. The recent cut in the discount rate may also trigger consumer financing which could lead to higher sales of passenger cars. If local banks are able to shake off horrendous memories of the consumer financing boom-bust of 2003-2008; they may help local car assemblers boost sales to 15,000 units by the end of this fiscal year.