Autos: on a roll

Business Recorder (BR) Research

Auto sales are a compelling sign of a growing economy. The growth may be linear in nature and may not be well distributed but a flourishing auto sector is never bad news; and naturally, great news for local assemblers. The sector closed off FY16 with the highest ever sales of passenger cars with 181,145 units sold throughout the fiscal, a growth of 20 percent from FY15s 151,134 unit sales, overtaking the boom of 2007 when car sales stood at 180,834 units, according to PAMA data.

There are some local automakers that PAMAs database does not include (such as FAW cars) in its reporting but the overall picture for the sector is highly encouraging. As has been the case for several years, local automakers are more successful at selling high engine cars than smaller cars given there is also little variety in the latter category.

Having said that, due to the Punjab Apni Rozgar Scheme that provided easy financing facility to unemployed youth, in the first half of FY 16, Suzuki Bolan of Pak Suzuki Motors (PSMC) saw a huge jump in sales that slowed down by March since the scheme ended in February.

Suzuki was able to sell twice the number of Bolan cars during July 2015 to Feb 2016, then in the same time period last fiscal. In essence, until January of FY16 Bolan sales averaged at 3,000 cars while monthly car sales thereafter for the fiscal stood at 1,570 cars. The scheme was welcomed albeit temporary. Pakistan Suzuki’s other smaller car variant Mehran saw a 25 percent bump in year-on-year growth.

Suzuki also brought a limited edition Cultus in January that lived up to its hype, selling on average 1,600 cars since March against a much lower average of 1,200 cars in FY15. Cultus sales grew by 19 percent in year-on-year growth. Sales for Suzuki Ravi that was also part of the Rozgar Scheme grew by 31 percent and had similar success as Bolan.

In the coming fiscal, consumers will see substantial changes in Suzuki’s fleet; Suzuki Mehran and Cultus could be replaced by Alto 7th Generation and Celerio, both small cars and much needed for a market that is hungry for better, smaller cars.

Honda Atlas Cars (HCAR) has had a moderate year. Demand for civic had dwindled since FY15 and the company is no longer reporting individual figures for civic and city to PAMA. Combined sales grew by 9 percent selling 27,726 units in FY16 while HCAR has the capacity of manufacturing 50,000 cars.

Month-on-month growth shows a prolonged downward trend-from selling about 3,000 units in Jan of 2016 down to 1,900 units in the close of this fiscal. However, next fiscal will be another story since the company is introducing two models for Civic (10th generation): 1.8L Oriel Prosmatec and 1.5L Turbo, both with a higher tagline but much anticipated. Pre-booking for the cars has already started and the models will be launched sometime at the start of FY17.

Indus Motor Company (INDU) sold about 6,000 more units of its flagship variant Corolla in FY16, ending the year with a 12 percent growth which is one of the highest growth since 2000. Corolla sales have had minor ups and downs with average cars sold in FY16 were 4,787 units against 4,283 in FY15. As a company that enjoys the highest margins of the top three automakers, INDU is secure in its place as far as profitability goes. Unlike its peers, the company has not announced any plans for new models.

However, earlier in Jan the global giant Toyota fully acquired Daihatsu and while there is no formal announcement from Indus Motors, the company could bring smaller cars here at home. It should.

In commercial vehicles front, trucks & buses grew by 39 percent in year-on-year growth selling about 6,500 units in FY16 to 4,700 units in FY15; mainly Hino. Gandhara Nissan’s Isuzu combined sales reached 1,566 units in FY16 against 1,020 units in FY15. Tractors, on the other hand, have been taking a beating for quite some time with a negative growth of 26 percent driven mainly by a fall in sales in Millat’s Massey. The tractor subsidy scheme announced in the budget FY17 is delayed which will put a dampener on further tractor sales.

The outlook for the sector remains strong amidst incidental factors that could play out unfavorably. The yen appreciation against the dollar and its trickle-down effect to the rupee could suppress margins for local automakers that earlier enjoying high margins when yen depreciated in 2014. It’s a waiting game as to whether Bank of Japan will take any measures to stabilize its currency and a fair warning to local automakers here at home who might see their margins drop.

As demand and interest in cars pique, however, the sector should be wary of challenges. Used cars despite commercial restriction and substantially fixed duties imposed by the government are still coming in bulks and will likely continue to do so. These used cars are relatively small engine cheaper varieties that do not have locally manufactured alternatives as yet. There is a gap in the market that needs to be filled. The new auto policy did no favors to existing automakers focused on gaining investments from European car makers so consumers could be seeing new high-end models in the market, but not in the immediate future. On the other hand, auto financing has seen a huge surge which is a sign that consumers are responding to their growing need for vehicles. Commercial automobile sales will go up rapidly as CPEC begins to kick off. Investors have remained confident in the industry’s stocks where the sector outperformed the benchmark index after a rough start to the year. Growth trends show that the sector is well placed for the future, some challenges notwithstanding, and will be bolstered by the promises of this growing economy. Published: July 18, 2016.