The automobiles sale has been declined by 40 percent in the recent months following curbs on purchasing new vehicles by non-filers which is very alarming for the auto industry.
The restriction of purchasing a vehicle on the non-filler would not only prove to be a threat to the auto industry but also cause unemployment that is meant to defy the government efforts of job creation, said the Lahore Chamber of Commerce and Industry (LCCI) former president Malik Tahir Javaid on Tuesday.
He said that changing macro environment, exchange rate volatility, rising interest rate environment along with regulatory changes have been steering the auto sector to demand pullback regime. The challenging macro environment had been putting all its pressure to keep overall auto demand sub-par, whereas, on the other hand, companies with higher debt/equity ratio would be affected to rising interest rates, he added.
"Our auto sector earnings growth is estimated to depict 24 percent decline in 2019, leading to 6 percent over the next three years," Malik Tahir Javaid said, adding that already feeling the heat, auto sales have been impressive with landmark of highest ever monthly sales in October 2017 of 23,341 units were achieved in fiscal 2018.
He feared that sales growth may become the victim of (i) slower economic growth (FY19- GDP growth of 3.7 percent vis-à-vis fiscal 2018 GDP growth of 5 8 percent) (ii) rising interest rates since start of 2018 (iii) persistent increase in 2019 to be a tough one: "With growth drivers under pressure and low interest rate environment along with rising inflation hurting purchasing power of the consumer, we foresee automobile sector to close fiscal 2019 on a dull note," he added.
Pointing currency volatility that is the biggest threat, he said numerous episodes of currency devaluation against the greenback, flagged such spurts that would drag sales. He said that growth or margins of automobile sector are casting uncertainty for the demand of price elastic variants.
He said that long-term Auto Policy 2016-2021 is still in place, however, the coming year posing key risks to our outlook include (i) steeper drop in economic growth, (ii) adverse change in duty on imported CKDs, (iii) sharp increase in steel prices, (iv) further unexpected volatility in exchange rate.
Malik said that mindful of the headwinds in term of currency risks, rising interest rates and new competition flagged would be shoving the auto sector towards dead end. He said that strong demand from ride-hailing services and auto-financing kept volumetric growth on the high side for automobile assembler. However, earning performance remained subpar as rising input costs and compressing margins, limited earnings to a 4-percent growth rate, which was 29 percent last year.