Winter chills in the auto industry

Against all odds, the countrys auto industry continued to record humble growth during the first half of the current fiscal year.
Total car sales grew by nearly 11 percent in 1HFY11, as higher agriculture commodity prices, such as those of cotton, sugar and rice, coupled with hefty remittances, enticed buyers to car showrooms.
HCAR outperformed others, with both its variants Civic and City recording double digit growth. PSMC, the market leader, sold a total of 38,320 units registering 14 percent growth over the corresponding period last fiscal year. It was propelled by growth in market appetite for Bolan, Alto, Ravi and launch of Swift.
On a month-on-month basis, however, demand for new cars remained dismal in December, as the market saw a short period of relaxed used-car import policy, owing to which orders of nearly 5,000 used cars were booked in December, as per industrial sources.
New car registrations tumbled to 7,446 units in December compared to around an average of 10,000 units sold during the first five months of FY11, but was still above 5 percent from the year ago period.
But while the relaxed used-car import policy in December also applied brakes to the demand for new cars, the main culprit behind lower sales volume, however, is the seasonal impact. As buyers prefer to register for new year models, car sales usually remain weak in the last month of the calendar years.
Although the government has tightened back the used-car import policy (under personal baggage, gift and transfer of residence schemes), the industry doesn expect car demand to improve much in the remaining part of FY11.
Still, modest car sales growth is imminent this year on the heels of better agricultural income, as market conditions will likely start stabilising after the spring harvest in the last quarter, and growth in remittances.
The industry still counts on favourable policies - such as protection from foreign competition - to support sales growth; yet, and despite the high level of protection given to local auto industry in the past, it appears to be a lose-lose situation for the government.
Given the fact that the industry is not ready for foreign competition and faces the threat of closure if exposed to foreign competition, the way forward is to devise trenchant policies that would steer the industry towards more localisation as well as research and development.
If the protective environment continues without enforcing stringent policies, the local industry stands little chance of standing on its own feet.

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Local auto production

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            1HFY11      1HFY10       Chg

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PSMC       38,320       33,675       14%

INDU       22,408       20,902        7%

HCAR        6,875         5671       21%

Total      59,646       53,565       11%

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Source: PAMA