2018
Monitoring Desk
KARACHI
It has been an eventful, but tough, year for automakers in Pakistan as key developments on the macroeconomic front proved to be hard-hitting for the auto sector.
The rupee witnessed massive depreciation against the US dollar, which then led to the existing carmakers raising their prices on multiple occasions to pass the impact of increased cost on to the consumers.
Adding to this, the Pakistan Muslim League-Nawaz (PML-N) government, in its last budget unveiled a surprising decision, which severely impacted the sector.
In the budget for fiscal year 2018-19, the government placed a ban on purchase of automobiles by non-filers, in an attempt to encourage people to file their income tax returns. Whether this measure succeeded in achieving its target is a different matter, the move, however, elicited an adverse reaction from the industry. Over the course of the past year, the government also hiked the interest rate by a cumulative 4.25 percentage points, which added to the woes of the sector.
If numbers are to be believed, the auto sector, which was in its growth phase hit a roadblock as sales dropped significantly. Overall, automobile sales dipped 17% year-on-year to 17,442 units in November 2018, whereas sales dropped 30% to 17,442 units on a month-on-month basis against 24,850 units in October.
It was a trying year for Indus Motors, Pak Suzuki and Honda Atlas, as company profits suffered owing to various developments in the economy. The previous government’s decision to restrict non-filers from purchase of automobiles and the massive depreciation in the rupee significantly dented demand.
“In terms of calendar year, it has been the worst for the auto sector, although there was some growth seen in the previous fiscal year,” said AHL analyst Arsalan Hanif.
Citing reasons for the dismal performance, he said the restrictions on non-filers and the massive rupee depreciation played a key role in the sector’s decline.
The devaluation in rupee impacted demand as purchasing power of consumers also decreased, he added.
The earnings of all three companies dropped as they struggled to deal with the changing macroeconomic indicators. Indus Motor Company, which assembles and manufactures Toyota cars in Pakistan, had to stop taking orders because of the sharp depreciation, which made import of auto parts expensive and increased the cost of production.
In terms of earnings, profit recorded by the company witnessed a decline of 3% in the quarter ended September 2018 compared to the previous year.
However, the company had witnessed a surge of 19% for the same period in 2017.
With the competition increasing in the sector, Indus Motor also announced to import completely built units of Toyota Rush in a bid to capture the price segment between its Corolla and Fortuner vehicles. Apart from this, the company also looked to boost its performance as the board approved an investment of Rs3.3 billion to increase its annual production capacity.
Meanwhile, Pak Suzuki also faced some serious competition as United Motors ventured into the passenger car market, tapping the low-priced segment of the society, which has largely been catered to by Suzuki Mehran. Additionally, profits reported by Pak Suzuki plunged by a massive 55% in the January to September period, while the share price of the company fell 62% during the year.
However, on the occasion of achieving milestone of manufacturing two million vehicles, the company also announced an investment of $460 million in a brand new plant.
During the past year, Honda Atlas raised its car prices four times, while Indus Motor and Pak Suzuki raised their prices four and five times, respectively. The three automakers are also expected to increase prices in January.
