Of worst performers

Pakistan is in a manufacturing recession – at least that’s what the decline in production is indicating. In 4MFY20, large scale manufacturing has contracted by 6.5 percent (read more: “Manufacturing contraction”, Dec 20, 2019). Unsurprisingly, some of the worst industry performers belong to the automobile industry, with commercial vehicles winning this losing game. In 5MFY20, pickup sales went down 52 percent, while trucks fell 51 percent.

While the oft-discussed passenger car segment is not too far behind either, the commercial vehicle decline registers a more troubling trend simply because production has been falling since FY19. In fact, during the last fiscal, truck sales fell by 38 percent year on year, while pickups fell 13 percent. This was a time when passenger cars category still recorded growth — cars of 1300cc and above had grown by two percent, while 1000cc cars grew by 11 percent.

While the overall automobile industry pie continues to shrink during FY20, the commercial vehicle segment is taking even less of a share. In the past, these used to be 36 percent of total auto sales, now light and heavy commercial vehicles together with tractors take up about 30 percent of the share. The decline is also visible in the import figures. Built unit imports for LCV and HCV are down 34 percent, even as knocked down kits were lower by 38 percent for trucks and 13 percent for pickups. This in turn corresponds to the final production of commercial vehicles.

The decline in commercial vehicle sales is also a clear sign that the overall manufacturing sector is receding. It happens to be a good barometer for where the economy stands.  Higher demand means transporters, freight forwarders and logistic companies would find more business which happens when consumption, retail and trade is booming. It makes sense.

While the country’s exports have grown recently, imports are substantially down (especially for luxury goods where government has slapped add-on duties), whereas purchasing power has also witnessed an overall decline causing consumers to pull back, reverting their buying preferences toward essential goods. Will there be a recovery soon for the worst performers? That is a tough call.