Pakistani Automakers face a big setback

Pakistani Automakers face a big setback

ISLAMABAD - Pakistani automakers operated several non-production days over the months and recorded a marked decline in both production and sales. Cumulatively in 7MFY20, cars and jeeps recorded a 44 percent decline in sales and a higher 46 percent drop in production.

In January, the drop in both sales and production was similar, compared to same month last year.

But it appears that month-on-month figures may offer some hope: car sales sans Suzuki grew 87 percent in January against the same in December.

Analysts are pointing towards a recovery. They believe car sales have bottomed out in Dec-19 and a major impetus is coming beginning FY21 – that is, over the next fifth months.

One wonders how the buying power of potential car buyers would flip so abruptly – to warrant this “impetus" – given it took these consumers a while to bring this shift in the first place. By the end of FY19, when commercial vehicle sales were declining, passenger cars were still selling.

Fundamentally, all demand drivers are depicting a negative trend. Cost of financing is steep on account of the monetary policy holding ground. Inflationary pressures are still aplenty. Tax burden on consumption is still high, and automakers are still raising prices.

In fact, Suzuki registered slightly higher sales in Dec (month on month) only because a new price hike was coming into effect in Jan-20 and car buyers wanted to avoid that.

On the other hand, to the surprise of many, Large Scale Manufacturing (LSM) output data by PBS is showing growth of 9.66 percent in Dec-19 year on year.

Even if said recovery comes, it may not be too big a jump come FY21. Leasing costs may lower if discount rate comes down and purchasing power may also improve. But cars will cost substantially more than they did say, two years ago. Are incomes growing at the same rate?