Auto: Preparing for long haul

Last month, we argued that the auto sector was riding on the potential of great things about to happen (but haven’t as yet happened), and latest numbers only corroborate that argument. The sector is growing, albeit not at the pace that we prematurely estimated. To quote the sales figures for 9MFY17, as reported by Pakistan Automotive Manufacturers Association (PAMA), total sales for passenger cars, jeeps, LCVs and tractors grew by 5 percent driven mainly by greater demand for commercial vehicles and tractors. The trend since the start of this fiscal has been the same, and for obvious reasons.

In the passenger car segment, the auto policy has brought forward different investment plans in the fore, and at least three firm collaborations that we could see materialize over the next few years. But existing carmakers have been struggling. The segment was in for a downtime after the Punjab Rozgar Scheme wrapped up and Pakistan Suzuki’s (PSX: PSMC) Bolan and Ravi sales dropped. The scheme allowed 50,000 sales of the two variants that consequently slowed down once the scheme ended. On average, PSMC sold 1,000 Bolans more this period last year.

Suzuki’s performer of the year should go to WagonR which has fast gained popularity—sales grew by 84 percent in 9MFY17, growing each month. The car is in competition with similar imported smaller engine cars such as Daihatsu’s Mira or Toyota’s Vitz but has been holding its own in the market. The company has already stopped producing Cultus and may even scrap Mehran out, if rumors are anything to go by.

Meanwhile, there is still a layer of mystery over what will happen to the investment of nearly $660 million on a new plant with new models that the company announced it would make. It would seem from different sources that the Board of Investment (BoI) has not come up with a firm decision on what to do with PSMC. Some sources say the BoI would not give the concessions that PSMC is demanding or tweak the auto policy to that effect. Even so, these sizeable investments could not come at a better time.

Indus Motor Company (PSX: INDU) new Hilux-Revo is doing really well since its launch driven by the rising demand of pickups and LCVs. Its flagship Corolla however was doing marginally better last year but clearly the new Civic and other variants in the similar category (imported Suzuki Ciaz) may have eroded a little of Corolla’s market share. It remains a fan favourite car though and a sale is only a matter of a facelift until consumers start lining up. The company announced its own investment plans that ensure we don’t put the company in the backburner. INDU is playing for sure!

Honda (PSX: HCAR) is top performer of the three carmakers, despite being smaller of the two. The company sold 3,000 cars on monthly average this fiscal year compared to 2,000 cars this period last year.

This column has talked about the rise in truck and commercial vehicles sales earlier. The demand projections are enormous. New players are entering the playing field and investment plans like FAW with Hyundai are being considered by BoI. We also heard MAN was entering Pakistan with a manufacturing facility in tow. (Read our analysis on trucks: “Trucks revving it up” published on Mar 15, 2017). Existing players, Hino and Isuzu have witnessed phenomenal growth over the past few months.

Growth in the automobile industry and demand are prominent indicators of an expanding economy. Numbers may not reflect the enthusiasm for now, but as we have said earlier, the stage is being set. Some parties believe that the auto policy is not good enough to attract or incentivize European car makers, and may only be able to attract the likes of Kia and Hyundai for now; two names that have already been in the Pakistani market. That may be so, but we believe strongly that it is a positive start and this policy can be built upon. Competition will be the saviour for the sector. Let’s give them a chance.