Pakistani Auto assemblers push up prices as sales drop


By Hina Mahgul Rind

KARACHI: Continuous price hike of local automobiles since 2006 has put new cars out of range of middle-income groups.

According to the latest data released by Pakistan Automotive Manufacturing Association (PAMA) cumulative auto sales (cars + LCVs) depicting a fall of 40 per cent year on year and on a month on month basis, the scenario was more depressing as unit sales declined by 55 per cent.

But the prices of the local manufactured vehicles are continuously increasing. The three leading manufacturers i.e. Honda, Indus Motors and Pak Suzuki increased their prices thrice in 2008.

With the beginning of the New Year the Pak Suzuki once again increased its prices ranging from Rs40,000 to Rs70,000 on all its brands except Liana. Atlas Honda and Indus Motors had last increased their prices in November 2008.

According to the auto analyst Atif Zafar of JS Research the continuous price increase by the auto manufacturer is due to decline in their gross margins. At present the industry is focused to improve their margins.

Auto assemblers cost of production is higher than the sale price so they had to increase the prices to meet their cost of production and improve their margins.

He said that Pak Rupee depreciation against Yen and the increase in raw material prices internationally has forced the company to increase the prices and pass it on to the consumers.

Tightening of the monetary policy has increased the interest rate which further discourages the consumer to get a car on financing and banks have opted cautious stance in auto financing due to low recovery rate since last year this has also had impact on the sales of the automobiles.

He said government has given some relief to the local auto sector. The 35 percent margin on import Letter of Credit was withdrawn and the depreciation rate was cut from two percent to one percent on imported cars making imported cars more expensive to favour local auto manufactures. However the quantum of the imported cars is very low this will not have much impact.

Ali Zafar added that decrease in the steel prices will have an impact on the cost of production after more than six months.

However analysts believe that this trend of decline in demand will continue and the prices will remain high in current year until the economy stabilizes.

Despite drop in sales and productions cuts, Honda is about to launch its new model by the end of this month. Similarly last year Indus Motor launched its 10th Generation Corolla.

The prices of the imported used cars have also increased. In the last budget age of imported used cars was decrease from five years to three years and 20 percent duty was levied and in August 2008 regulatory duty was also imposed which added up in the prices of the imported new cars and imported used cars.

With the beginning of the New Year the Pak Suzuki once again increased its prices ranging from Rs40,000 to Rs70,000 on all its brands except Liana.

In 2006 Pak Suzuki’s Mehran VX was Rs315,000, VX CNG was for Rs345,000, VXR CNG was for Rs390,000 the same cars in November 2008 were for Rs407,000, Rs453,000 and Rs499,000 and since January 15 the company has added Rs40,000 to the price tags.

The Suzuki Alto VX, VXR and VXR CNG in 2006 were available for Rs419,000, Rs464,000 and Rs499,000 respectively the same models in Nov 2008 were costing Rs556,000, Rs603,000, Rs655,000 and Alto VX CNG was costing Rs.607,000, the company has added Rs50,000 to their price tags.

In Nov 2008 the Suzuki Cultus VXR was costing Rs767,000, VXR CNG was for Rs809,000, VXL was for Rs830,000 and VXL CNG was for Rs884,000. The company has added Rs70,000 to the price tags January 15.

Source: The News International, 22-Jan-09

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