Auto sales: Wheels keep churning

FY12 is certainly the year of recovery for Pakistani automakers. Data released by Pakistan Automotive Manufacturers Association show that all industry participants are off to a flying start in the first four months of the current fiscal year. The main growth drivers for the industry were 1,000cc and 800cc categories which experienced a surge in demand from the start of the year. Improving car sales are considered a leading indicator of economic growth. As such the prevalent trend holds promise for the economy at large. Economy cars led the pack in terms of sales growth, as sales for the 1,000cc and 800cc models shot up by about 26 percent and 35 percent, respectively, when compared to the same period in FY11. Pak Suzuki saw its sales surge by 38 percent over the 4MFY11. Sales for Indus Motors grew by 7 percent backed by rise in demand for the new fuel-efficient model of Corolla, over the same period. Honda sales grew by a relatively modest 14 percent in 4MFY12 compared to the same period of last month. In the first month of FY12, passenger car sales stood at 14,856 units showing a phenomenal increase of 52 percent compared to 1MFY11. Analysts had attributed this surge in demand to the postponement of car sales from the last month of FY11 to FY12 in anticipation of tax benefits. Higher sales in the preceding month had been written off by some industry observers as a one-off change. Analysts had attributed the higher turnover to deferred purchases to avail favourable taxation rates along with purchases made under Punjabs revival of the yellow cab scheme. The raison dêtre for higher sales was keenly observed because any sustained strength in car sales may hold clues for improving economic conditions in coming months. In October, sales of passenger cars stood at 13,690 units, ruling out the assertion that the recent rise in demand was a one-time event. Certainly one cannot completely rule out the postponement effect but consistent improvements in auto sales lend credence to relatively optimistic outlooks for the economy. Industry players believe the continued improvement in car sales in the country has been largely made possible by high remittances from abroad along with healthy agricultural incomes in recent times. They expect annual sales in FY12 to tally about 17 percent higher than the previous fiscal year. However, the granting of MFN status to India will likely have major repercussions for the industry. Auto assemblers will find it easier to import parts from Indian manufacturers at cheaper rates. However, local parts manufacturers will undoubtedly be exposed to stiff competition from similar firms across the border. The government has assured industry stakeholders that adequate safeguards will be provided against competition from abroad. However, until tangible measures are implemented, the likely impact of liberalised trade with India will remain elusive.