Outlook hazy for auto industry

In sharp contrast to weak market sentiments, car sales rose, though a modest 5 percent, in August.
Sales of the low-end automaker Pakistan Suzuki Motors and Honda Car nudged higher but that of Indus Motors cooled off by 9 percent. In growth terms, Suzukis Alto was the star performer, with 56 percent surge in volumetric sales to 1,141 units, while demand for Suzuki Liana and Hilux saw a major fall - falling by 66 percent and 56 percent respectively.
Sentiment has been souring since the onset of the floods that have washed away quite a sizeable portion of the standing crops and infrastructure. Although, damage caused due to floods has started impacting the economy negatively, but, earnings from the previous seasonal crops and strong remittance inflow supported the demand for car and motor cycles in August.
On the other hand, reflections of economic weakness have been rather apparent from the declining demand for commercial vehicles such as tractors, trucks, jeeps, buses, and pickups.
With large swathes of cultivable land under water, demand for farm tractors alone fell to 3,637 units in August, reduced by a quarter compared to the previous year and 33 percent lower from units sold last month.
Demand for automobiles usually tends to rise in October, after the beginning of harvest (kharif) season in September. However, on account of poor agriculture output feared this season, the industry would not be able to cash-in on the seasonal uptick.
Auto industry officials expect car sales to fall by around 20 percent in FY11, adding that demand will remain tepid till March or the beginning of next (Rabi) harvest crop season. However, at the same time, the market is also skeptical of the wheat outlook owing to non-availability of resources, such as seeds and fertilizers.
In the midst of poor demand, the industry is also facing rising cost pressures. Since January, the Yen alone has strengthened by 13 percent against the rupee. It is unfortunate that the absence of low-cost currency hedging instruments has left limited avenues for importers to minimize currency exchange losses.
Putting two and two together, its safe to assume that auto industrys profitability will take deep cuts in FY11.

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Vendors        Aug 10    Aug 9    % Chg

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Pak Suzuki       6,479      5,973       8%

Indus Motors      3360       3703      -9%

Honda Atlas       1180       1053      12%

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Source: Pama