Car sales on the rise in Pakistan

The News report
By Hina Mahgul Rind

Car sales in July surged 61 percent to 17,563 units against 10,942 units in the same month of last year.

On month-on-month basis, the sales improved by 134 percent from 7,517 units sold in June 2011, reveals data released by Pakistan Automotive Manufacturers Association (PAMA).

Pak Suzuki Motor Company led the growth with 116 percent rise to 11,997 units from 4,503 seen in the same period last year.

The sales of Indus Motor Company declined by nine percent to 4,551 units from 4,999 units in July 2010. Motorcycles and three wheelers sales in July 2011 surged to 74,748 units from 65,540 units in the same period last year.

Auto analysts believe that this increase was expected in the month of July as sales plunged in the month of June owing to reduction in taxes from July 1. Customers slowed bookings to take benefit of the tax cuts, which had led to a 43 percent month-on-month fall in June.

Other reasons for the improved sales were strong rural income owing to rising agriculture commodities prices.

Furqan Punjani, an analyst at Topline Research, said that the new fiscal year has begun on a positive note for the car manufacturers.

This significant improvement is primarily attributable to sales deferred from June to July as buyers opted to take advantage of tax cuts, he said. “July sales are not an actual depiction of the sector’s fundamentals and they are expected to ease down going forward.”

Amid absence of aggressive consumer financing due to high markup rates and nominal growth in agriculture economy, sales in FY12 will improve only 5-10 percent, he said.

It is testing time for the sector on account of strained margins amid continuous appreciation of Japanese yen and high regulatory risks, he said.

Furqan added that continuous deprecation of Pak rupee against all major currencies, especially Japanese yen (12 percent in FY11), which accounts for major cost portion along with threat of further relaxation in car import policy kept assemblers’ pricing power under scrutiny and gross margins under pressure during FY11.

There was negligible growth in sales to around 146,000 cars from around 141,600 cars in FY10.

The government in budget FY12 abolished the 2.5 percent special excise duty and reduced the sales tax by one percent to 16 percent. These cuts were soon completely absorbed by the assemblers, thus strengthening their gross margins.

The absence of consumer financing would restrict the sales growth to seven percent to 157,000 units.

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