More than the year-end anomaly

The robust growth experienced by the auto sector in the 1QFY12 persisted in the second quarter. Despite fuelling inflation, worsening economic condition and surging car prices, the latest sales figures released by PAMA (Pakistan automotive manufacturer association) show a 20 percent increase in the 5MFY12 compared to the same period last year. The largest increase of roughly 29 percent was seen in the 800cc and below 1000cc category. Whereas the 1000cc category registered a growth of 22 percent, following it with an 11 percent year-on-year increase in 5MFY12 is the 1300cc and above segment. The 20 percent increase, however, includes the roughly 4200 units sold under the Punjab governments yellow cab scheme. Also swelling the growth number is the postponement effect that was experienced at the start of the current fiscal year. The numbers for November, however, aren that impressive. Amongst the three main players, only Suzuki saw an increase in sales (roughly 23 percent) this month compared to the same month last year. The sales for Honda and Toyota declined by 17 and 21 percent, year-on-year, in November 2011. While talking to BR Research, Talha Siddiqi, deputy manager, marketing, at Pak Suzuki said the slowdown is seasonal, as people postpone purchases in the last months to register their cars in the next year. This seasonal slowdown becomes clear by looking at the graph. It can be clearly seen that sales for the last two months of the year are well below the trend line, pointing out a slowdown in demand. Further, this trend evolves into a large increase in sales in the first two months of the coming year. Hence, the diminishing demand wouldn stay for long. However, one cannot rule out the fact that apart from the year-end postponement effect, there is a slight retardation in demand. It is believed that the slowdown in demand would continue as it is a spillover effect of the slowdown of exports due to the decline in cotton prices. Overall, while demand would spring back by the beginning of the next year on a short-term basis, long-run a slight slowdown would be seen. Therefore, automakers should not get all complacent come 2012.