The consistency in growth of auto sales especially in the car, pickups and commercial vehicle segments is refreshing, but not entirely unforeseen. According to data report by Pakistan Automotive Manufacturers Association (PAMA), the industry excluding motorcycles saw a 25 percent growth in 10MFY18 with cars and jeeps growing by 23 percent during the period. But the sector may not be able to maintain these growth rates for very long given the latest restriction in the budget on the purchase of new vehicles by non-filers.
Let’s first talk about the latest numbers. Leading the pack is Pakistani Suzuki (PSX: PSMC) that has grown its market share from 53 percent this period last year to 56 percent in 10MFY18 and has not seen a dull day since the fiscal year kicked off. Suzuki carries the niche in the car segment given it faces little competition from other players. However, many of its variants are in direct competition with used cars, which are usually in the small-car segment. It is testament to the demand in this category that Suzuki’s sales have only flourished as used cars import also grew in tandem.
The new consumer favourite Wagon-R is growing faster than any other model (10MFY18: 69%); while Cultus sales are also a close second, growing by 34 percent during the period. Suzuki Ravi is also keeping its head above the water despite some serious competition in the segment from the FAW carrier, which is slightly more expensive but is considered to be a better quality.
Next in line is Honda Atlas Cars (PSX: HCAR) that has been a top performer since FY17 and is continuing its streak through this year as well. The company sold on average 3600 units each month last year against 3100 units previous year. Honda-BR-V’s market acceptance is evident. The model is subcompact crossover SUV launched last year and is a popular vehicle type particularly suited for families across the world. As said earlier: “Consumers may find it attractive given that it doesn’t cost as much an SUV but still has interesting SUV features”.
Indus Motors (PSX: INDU)’s flagship Corolla is not seeing a positive growth, part of the reason maybe the company discouraging investors buying vehicles in bulk and selling them to consumers on premium. But Corolla’s demand may not see a substantial cutback over the one-year span.
The company has enhanced its capacity a little to manufacture more vehicles, but it doesn’t seem it is keeping up with consumer appetite. The company may face less pressure once new players come in and consumers shift their attention on new brands. The company’s Fortuner sales doubled during 10MFY18 as it is the only SUV locally assembled in the country and faces competition from the more expensive imported variety.
As mentioned earlier though, the sector may see a massive drop in sales come July 1, when the regulation on non-filers kicks in. With such a low tax filer rate in the country, it is clear that most vehicle buyers are and will be non-filers. According to PAMA’s advertised appeal in the local newspaper, the government could lose up to Rs100 billion in revenues and this condition would reduce the market size by 200,000 annually.
The new entrants in the sector will also face the same problem and may not be able to meet their sales projections if most of the prospective car buyers cannot purchase their cars. This would disrupt these incoming investments and may prove to be a deterrent for them sticking around.
Another consequence is if tax filers join the investor club, buying vehicles in bulk and selling them off on premium to non-filers. Will companies want to discourage this “own-money” market when they know there is no other way to maintain their sales? Indus Motors has been discouraging the investor element but will it continue to do so if it knows that much of its prospective consumers cannot purchase the vehicles by the regular route?
Moreover, used cars which are brought into this country by dealers on the documents of overseas Pakistani will see massive growth since non-filers unable to buy new cars will be flocking at the dealers’ showrooms without any alternative in sight.
It doesn’t seem a lot of thought went into curating this new policy. Perhaps it would eventually lead to an expansion in the tax base, but not before the government and automakers lose a lot in revenues.
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