Beyond rose tinted glasses

Let’s paint a picture here. FY19 was the worst performing year for the manufacturing sector in a decade. But only two years ago, the outlook on manufacturing was very different. Government was in expansion mode, heavy CPEC investments were signed which translated to rose CPEC-led growth projections. The palpable excitement reverberated through the industrial sector. Many industries and business conglomerates—wearing those rose-tinted glasses—started mulling over making massive capital investments to expand their manufacturing. While the expansions came, the demand stepped back. The decline that the automotive industry is experiencing now tells this very somber tale.

At the time, the automotive industry was all set to bring in top global players to the Pakistan market. While many of those new players are now coming (mainly Kia and Hyundai), they are stepping in a pie that is getting smaller by the month. In the commercial vehicle segment specially, that pie is shrinking much faster and poses a threat for any of those massive Chinese heavy commercial vehicle manufacturers that were supposed to expand the market.

Pickup sales have dropped 32 percent in 2MFY20, trucks 46 percent, and buses 26 percent year on year. Overall, these including passenger cars and jeeps have dropped 39 percent volumetrically. If FY19 was one of the worst performing years (commercial vehicles sales dropped 18% year on year), and sales are slowly sliding down, is it all downhill from here?

Commercial vehicle sales can be a good barometer for trade and economic activity in the country. Their decline is visible in the economic austerity the country has entered. Consumption has markedly reduced, disposable incomes have come down chipping away at consumers’ purchasing powers, production costs are up but production is down.

In the past two months, 646 trucks were manufactured against some 1100 trucks last year. At this rate, the expected truck usage that was to go up to 20,000-60,000 by several estimates by the year 2020 is only a dream. It also shows how as an economy, we tend to overestimate our demand projects and come up shorter (this happened several years ago as well under the auto policy where demand could simply not meet projected volumes and automakers could not meet localization targets as a result).

Now several new ventures into commercial vehicles including Chinese Forland, Joylong, Changan or the likes of Daimler AG and Mercedes Benz are still in the pipeline under the auto development policy.

Their success will predominantly depend on how well the demand recovers over the next year which comes down to trade, commerce and retail picking up which actually comes down to the very last consumer- and how better/worse-off he is from last year.