Commercial vehicles industry in the lurch

Battered by a series of unfavorable events such as heavy monsoon floods, relaxation in import policy and supply disruption from Japan during the ongoing fiscal year, the demand for cars and pickups managed to trundle at an 11 percent and 17 percent growth rate, respectively, during the first eleven month of the current fiscal year as against same period a year earlier.
Despite an anemic recovery pace, the car and pickup segments fared relatively better than the commercial vehicle sector. The latest car statistics show that demand for locally manufactured trucks, buses and jeep fell by around 22 percent, 17 percent and 26 percent, respectively during the first eleven months.
The local manufacturers reiterate that depressing sales were due to rising cost of locally manufactured commercial vehicles, stemming from rupee depreciation against yen and dollar, inflation and high metal prices, forcing buyers to shift toward cheaper imported vehicles.
The market concerns closely chime with import statistics, since the total import of buses, including trolleys jumped to 189 units in the first nine month of the current fiscal year as against 117 units imported in the same period a year earlier, according to the Economic Survey of Pakistan.
On top of that, the relaxation in import policy, after the FBR extended the maximum limit of the depreciation from 50 percent to 60 percent on the import of used trucks, agricultural tractors, buses and vans last month, with a monthly deprecation rate of 2 percent, would further support appetite for imported heavy vehicle.
With the commercial vehicle industry already sinking, the announcement of exemptions of tax amnesty on vehicles exceeding 5 ton gross weight and on heavy commercial vehicles - which covers trucks, dumpers, trailers, road tractors etc--in the budget FY12, though overwhelming development for already taxed vehicle manufacturers, sounds the death knell for heavy vehicle manufacturers.
Besides, the government is also aiming to lift sales tax exemption on the import and local supply of defence stores, but the local manufacturers don foresee decline in auto sales to defence sector, as military ongoing activity against war and terror would keep demand for vehicles intact during the next year.
Local car manufacturers are likely to benefit from the removal of special exercise duty, along with the reduction in sales tax, as this incentive will reduce car prices by 3.5 percent.
Above all, PSMC, the largest car manufacturer, must have cheered to the echo when the Punjab government announced selection of Mehran and Bolan for the Yellow Cab Scheme. Given the current sales level, additional 15,000 to 20,000 unit cars sales under yellow cab scheme would help the company to realise around 20 to 25 percent growth in sales during the next fiscal year.