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After a turbulent 2023, stakeholders are cautiously optimistic about the revival in auto sales after the February 8 elections and the smooth transfer of powers to the newly elected government.
Future sales outlook will depend on lower interest rates, reducing the prices of vehicles based on rupee-dollar parity, and the production of various crops during 2024, which plays a crucial role in overall auto sales in rural areas.
Some of the positive economic developments are improvement in the current account deficit due to a reduction in imports, resumption of the International Monetary Fund (IMF) programme, rising foreign exchange reserves and an expected fall in interest rates on account of a drop in food inflation, which may augur well for the industrial sector.
However, unbearable power and utility bills may keep a number of middle- and upper-income buyers from purchasing a new vehicle.
High interest rates have already decreased the number of outstanding auto loans for the 18th consecutive month. In December 2023, outstanding auto loans were Rs251 billion from a peak of Rs368bn at the end of June 2022.
Plants have been operational since November 2023, after a year of frequent shutdowns
Pak Suzuki Motor Company Limited (PSMCL) delisted from the Pakistan Stock Exchange last year. Currently, the auto market is abuzz with reports that another Japanese automaker may follow suit. However, when asked to confirm the market report, the Lahore-based assembler said, “There is no such plan.”
Ali Asghar Jamali, CEO of Indus Motor Company (IMC), said sales had improved in January 2024 but did not match previous years. “Auto financing has completely finished due to high interest rates,” he said. “But, I think interest rates will go down in 2024, and auto sales will start picking up slowly.”
An authorised dealer of a Japanese car assembly company said that despite the uncertain business environment and peak interest rates, January 2024 was quite better compared to November and December 2023.
He said buyers usually prefer buying cars during January every year due to a change of model year. But, in January 2023, only 6,021 cars were sold, compared to 13,780 units in December 2022.
The dealer had hoped that elections would lead to higher demand for SUVs and jeeps. But the ray of hope faded during December 2023 as only 130 units of Fortuner and Revo were sold, which is the lowest monthly number during the July-December 2023 period.
Despite skyrocketing prices, the sales of these costly vehicles have improved in January 2024 ahead of the February 8 elections, but it is hard to tell whether these brisk sales were due to pre-election buying or over a change of model year, he added.
Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam), Abdul Rehman Aizaz, is of the view that sales pick up in vehicles will be very slow and restricted until the discount rate comes down to eight to 10 per cent.
“I am not expecting a further drop in sales, but they will remain depressed till the macroeconomic situation gets better,” he said, adding that it is not only the auto industry but the whole industrial sector is suffering. The cement, glass, or textile sectors are all working at around 50-60pc capacity. Capital-intensive automobiles suffer more due to heavy taxation imposed in the last two years and expensive financing of over 24pc.“
When asked how many people had lost their jobs (permanent, contractual and daily wages) in the vending industry during 2023 due to frequent plant shutdowns of local assemblers, he said it was difficult to give exact figures, but it was estimated at 200,000 to 300,000.
Until June 2022, the industry was booming, but the State Bank imposed restrictions on opening letters of credit, disturbing the momentum. Later, increasing political uncertainty and multiple jumps in the discount rate pushed auto demand to just 30pc compared to FY22, the Paapam chief said.
Mr Aizaz said that the entire industrial sector cannot revive until taxes are lowered and the discount rate is reduced “sooner, the better”.
In the last quarter of 2023, the State Bank eased restrictions, helping assemblers keep production rolling. As a result, the arrival of imported completely knocked down (CKD) kits by the assemblers soared to $104m during December 2023 from $72m during November 2023 and $23m in October 2023.
As a result of high CKD imports, the overall production of cars rose to 6,654 units in December 2023 from 4,271 units in November and 3,868 units in October.
Plant shutdowns have been in vogue since August 2022 due to restrictions on imports by the State Bank. The IMC plant witnessed the last closure from October 17 to November 17, 2023, but has been operational since.
The last plant shut down by Pak Suzuki was from November 6-14, 2023, and since then, the four-wheeler plant has kept vehicle assembly operational. After the last plant closure by the Honda Atlas Cars on November 8-9, vehicle assembly continued from December 2023 to January 2024.
Assemblers have also passed the negative effect of 25pc rupee devaluation against the dollar to the consumers by jacking up prices during 2023. One dollar was trading at Rs226 on January 1, 2023, as compared to Rs281 on December 31, 2023.
Published in Dawn, The Business and Finance Weekly, February 5th, 2024
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