Auto industry still engaged in struggle

December proved to be another ruthless month for the auto industry whereby car sales witness a YoY plunge of 22.5 percent to tally 7,381 units in December. FY13, so far, doesn augur well for the sector. The recent results released by PAMA reveal that the industry has lost its ground by 30 percent YoY in the 1HFY13.
The old phantom of imported cars kept irking the local industry. Market sources highlight that over 25,000 imported cars have made its ways to Pakistani market in 1HFY13, resulting in domestic industry recording humongous losses of over Rs 20 billion during the period.
Albeit ECC reduced the age limit of imported cars from five to three years in 2QFY13, however a large number of up to five-year old cars including variants of Toyota, Suzuki and Daihatsu are still being cleared by the customs authority, which is in utter defiance of governments decision.
Imported cars coupled with the termination of Non EURO-II compliant cars (Alto and Coure) and absence of taxi scheme came as a severe blow to the industry.
Industry sources also underline that the decline seen in December mainly comes on the back of New Year registration trend. As new models for Toyota Corolla, Honda Civic and Honda City have been rolled out; car sales are expected to gain momentum from January.
Delving into the details of individual companies, while Pak Suzuki and Indus Motors appear to be in hot waters, Atlas Honda emerged as a shining star, outperforming its peers by showing positive growth numbers. Due to fading away of Thailand flood impact and already producing Euro-4 compliant cars, unlike other players, Atlas Honda is riding on upward trajectory in sales and profitability in past few months.
During 1HFY13, Pak Suzuki appears to be hard hit by the termination of Punjab Government Taxi scheme which had bolstered the sales of Suzuki Mehran and Suzuki Bolan manifolds last year. Moreover, the termination of Suzuki Alto proved to another thump, resulting in the decline of company sales by 32 percent YoY to 34,324 units during 1HFY13 as compared to 50,718 units during the same last year.
Similar unfortunate situation persists for Indus Motors whose sales came down by 39 percent YoY to 14,699 units during 1HFY13 as compared to 24,066 units in 1HFY12. Decline in sales primarily comes on the heels of 38 percent YoY decline in Corolla sales to 12,429 units in 1HFY13.
Going forward, however ECCs decision to restrict age limit of imported cars appears to be a silver lining in the cloud, the conditions don appear recoiling in the near future as given the high inventory levels of used imported cars in the market, local industry is expected to reflect a lagged sales recovery. On the positive side, however, lower interest rate backdrop may also provide some thrust to the sales of new cars, buttressed by bank financing.