Two major developments recently may prove to be face saving for the car segment of the automotive industry as volumes were started to show fatigue. One: it is now allowed for non-filers to purchase vehicles with engines up to 1300cc and two: government has brought back the condition for used cars imports in which duties and taxes will have to be in foreign exchange the Pakistani nationals living abroad. The former will allow consumers—non-filers or not—to buy local vehicles, while the latter will restrict used car imports coming in to the country. Both are contentious with varying consequences that may or may not be the best for stakeholders involved (read more: “mini joy rides”- Jan 28, 2019 and “new policy for old cars”- Jan 23, 2019) but it bodes well for car OEMs. Commercial vehicle and tractor manufacturers however will have to hunker down and ride out this wave.
Numbers from Pakistan Automotive Manufacturers Association (PAMA) reveal passenger cars have had strong sales in the above 1300cc (11%) and 1000 cc categories (13%) with a decline in small engine cars (25%) and jeeps (42%) in 7MFY19. The decline in trucks (27%) and pickups (9%) has come on surprisingly. Total trade activity has improved—volumetric trade data is not available but in rupee terms, total trade went up 18% percent.
Car makers have raised prices up to 18-20 percent in different phases since Dec-17, passing on the higher costs of imported inputs due to steel prices and rupee depreciation. The restriction on non-filers that the automotive associated claimed to have resulted in a huge slump is not showing in sales numbers that have remained quite robust. Whether it is Toyota Corolla, Honda City, or it is Suzuki Swift which isn’t a very sought after car to begin with.
There is demonstrable decline in Mehran sales and Bolan but for good reasons. The former is being phased out and the company just launched its potentially final limited edition Mehran while Bolan is middle class man car. Expensive cost of borrowing and lower disposable incomes may delay car purchasing decisions by prospective consumers. There have also been an increased number of imported varieties in competition with Bolan that may be eating up some of the market share.
The lower truck sales is likely demand side factors such as higher diesel prices (now been slightly reduced), higher truck prices hiked after the rupee devaluation, non-filers’ inability to procure new vehicles, and so on. The Oil and Gas Regulatory Authority (Ogra) has instructed the oil marketing companies (OMCs) to standardize their trucks/prime mover fleets which has resulted in an influx of old vehicles being sold in the market, and bought by fleet managers and freight forwarders on whom these restrictions are not available.
On the other hand, new pickups (JAC motors and Isuzu- D Max) are in the market. Multiple investment plans have been shared—some of which have been approved by the government—in the commercial vehicle segment. Chinese Foton group together with local partner JW group for instance wants to assemble dump and cargo trucks as well as special purpose vehicles. The Chinese Changan with local partner Master Motors will start assembly next month with European models. And then there is Volkswagon.
Clearly, investors are seeing what current numbers are not reflecting. Speaking to BR Research, Chairman Megamovers claimed that in light of the CPEC arrangement, there is a need for at least 25,000, 40 feet vehicles of modern fleet; currently that number is not more than 4000. More than 75 percent of the existing fleet in the market is outdated. If the government brings in the regulatory framework to ensure these fleets are updated, it would propel truck sales forward come FY20. Tractor sales tell a more complicated tale which warrants a separate column.
Over the next five months into the fiscal year, current trends are expected to maintain in trucks, buses, jeeps, pickups and tractor segments. Passenger cars will remain ahead of the pack, against all odds.
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