Is auto industry a lame duck?

Its been a testing year for auto manufacturers in Pakistan. From rising water levels that ravaged the landscape at the start of this fiscal year, to rising production cost, the industrys outlook was degraded multiple times in a year that also saw the much-feared relaxation of the auto import policy.
Contrary to what one had expected, however, higher agricultural commodity price along with improvement in corporate income saved the industrys neck - bringing the total number of car sales to 97,804 units in the first nine months of the current fiscal year, as against 86,483 units in the year ago period.
In the face of stumbling blocks, a 13 percent jump in car sales suggests that the industry is gradually coming back on a long lane that has no turning.
On the growth front, Honda Car clinched the top spot by retesting the 23 percent jump in its sales, as better corporate results, gains from agricultural commodity trading and growth in textile exports powered the demand for Honda Civic and Honda City.
The countrys largest auto manufacturer - Pakistan Suzuki Motors Company - also recorded an 18 percent jump in its total sales. Barring Liana and Cultus, all other variants fuelled the improvement in sales.
Aided by growth in demand for Cuore and Hilux, Indus Motors registered a 7 percent growth in car sales in the first nine months. Higher farm income also supported the demand for Hilux with sales nearly doubling to 1,776 units by the end of March.
Sales of Toyota Corolla were relatively mute, largely remaining unchanged at last years level in the first nine months of the current fiscal year, as the market had been waiting for the launch of its latest model. Now, with the model launched, Corolla sales should witness a phenomenal jump in the last quarter.
But while the demand for new cars is a good indicator of the economys health, weaker sales of commercial cars are worrisome. Latest data show that sales of trucks and buses slid by around 23 percent.
"To save fuel cost, presently, trucks and buses buyers are switching to light commercial vehicles, as evident from the 23 percent and 30 percent growth in demand for Suzuki Ravi and Suzuki Bolan", an auto industry official told BR Research.
On top of that, since the proposal to import five-year old commercial vehicles under the Gift and Baggage Scheme is under consideration by the ECC, it is quite likely that buyers of local manufactured commercial vehicles are currently delaying their buying decisions to take advantage of the relaxation in policy.
Its too early to say whether the ECC will choose to pull that plug on commercial vehicles, the current trend - of 13 percent year-on-year - in car sales shows that the full-year industry sales would reach 140,000 units.
Yet, these numbers would not be enough to raise the industrys sentiments, considering that it would still be far lower than the pre-crisis annual sales level of 180,000 units touched in FY07.