Auto: waiting for rain

There are clearly more cars on the road—at least it seems like it to those who on the oft chance live in big cities like Karachi or Lahore. The demand boom due to demographic changes has been all anyone could talk about, predicting massive growth in the automotive assemblers sector. Why though has that expectation and excitement not translated into local sales numbers quite as much?

To review the latest figures published by Pakistan Automotive Manufacturers Association (PAMA): total sales for passenger cars, jeeps, LCVs and tractors grew by 6 percent driven mainly by greater sales for commercial vehicles and tractors. The trend since the start of this fiscal has been the same, particularly with a squeeze in car sales which have been growing (3% in 10MFY17) but slowly.

The slowdown in Pakistan Suzuki Motor Company (PSX: PSMC) sales was expected due to lesser sales for Suzuki Bolan and Ravi—they had greater sales previous fiscal due to the Rozgar scheme’s 50,000 additional car sales. Since this fiscal kicked off, WagonR has been the star performer for PSMC; small, compact yet spacious much like similar popular cars that are being imported like Mira, Passo and Vitz.

PSMC has been in the news for all the good reasons for the past few months (Read our full analysis here: “In autos: show, don’t tell”, published on May 9, 2017). Between some new brands being imported (Ciaz, Vitara), a brand new version of Cultus coming out, and news that Alto 660 will be soon hitting the roads; consumer and investor confidence have both soared. This is despite the fact that the company has temporarily shelved its investment of $460 million not having received concessions under the auto policy.

Indus Motor Company (INDU) is also holding on, but barely. Sales are strong for the new Hilux-Rivo and Fortuner but Corolla sales were much higher this time last year. The company sites maintenance and factory upgrade as reason for slowdown. But Corolla has brought car growth significantly down since it has the highest share in car sales.

Honda Atlas Cars (HCAR) of the three has shown the strongest growth numbers with sales—selling more than 1,000 cars during this fiscal so far as monthly average.

The vibes for the future remain great—all carmakers have introduced new models, INDU is investing $40 million while Suzuki and Honda are upgrading and introducing new cars. Volumetrically however, local car sales grew by only 4,000 between 10MFY16 and 10MFY17.

In fact, the gap between local car sales and increased appetite is being met by imported cars; mainly used variety which is immensely cheap and popular. In the car segment during 9MFY17, completely built units (CBU) in value grew by 19 percent while those in completely/semi knocked down (CKD/SKD) forms grew by 27 percent year on year. Some of these are imports made by local assemblers but most others are used cars heavily in demand.

A better analysis can be done when we have access to quantitative data which Pakistan Bureau of Statistics (PBS) unfortunately does not publish. But if last year’s numbers are considered, imported cars stood at nearly one-third of domestic car sales. And if the latest value growth is anything to go by, imports are evidently getting greater traction, which is missing from local sales- for now. There are many reasons to this which we shall take up in a later column.

Meanwhile, commercial vehicles including tractors grew by 14 percent with trucks and buses growing by 38 percent in 10MFY17. There are also a handful of international brands interested in entering the playing field in the commercial segment, many of which are Chinese (Read our story: “Can we run with the bulls”, published on May 5, 2017).

The local sales numbers may belie the future outlook for the sector which is robust given how many new players could potentially be entering each segment, but imports will remain a prominent threat. More on that later.