Auto sales have been climbing much faster than previously expected; May saw sales reaching 11,819 units - its highest in two years. Sales for 11MFY10 now stand at 109,637 units, up 46 percent over the same period last year.
On the back of upbeat demand for Toyota Corolla, Indus Motors outperformed other automakers with 49 percent growth in sales volume in eleven months ending May, while Pakistan Suzuki followed with a sales growth of 40 percent.
But growth aside, auto industry on the whole, excluding Indus Motors, is still far from making nominal profits due to mounting cost pressure, thanks to persistent inflation, rising cost of imported raw material and low level of capacity utilization.
At present there are some signs of relief for automakers, as the government ignored the proposal - by the Ministry of Industry and Production - to raise duty structure on high tech parts as envisaged under the Auto Industry Development Programme.
Manufacturing issues, however, haven been resolved yet. There are fears that the proposed relaxation on the import of used cars will be allowed in the upcoming Trade Policy.
The Ministry of Industry and Production has recommended the government to relax the age limit on the import of used cars to 5 years from the existing 3 years, and increase the allowed depreciation rate to 2 percent from the existing 1 percent.
Liberalizing import policy would undoubtedly increase availability of low cost used cars on roads, but it will come at the expense of local automobile industry, which has been struggling to get back to the growth level it achieved during 2006-07.
After witnessing a drop in earnings during FY09, the industry is back into the positive territory and it is hoped that gradual improvement in capacity utilization coupled with further investments in technology will help business to stabilize prices in the foreseeable future.
In this regard, the multibillion rupee investment plan by Indus Motors to purchase two additional stamping press machines bodes well, as it would lead to improvement in indigenisation level, greater transfer of technology and employment generation.
Whether Indus Motors and its likes will be able to get good returns on their investment depends on whether the government will allow used car imports or not.
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Vendors Jul-MayFY10 Jul-MayFY09 % Chg
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Pak Suzuki 65,300 46,618 40%
Indus Motors 45030 30257 49%
Honda Atlas 12392 10282 21%
Dewan motors 1169 2089 -44%
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Source: PAMA