Dismal future for the auto sector

Khodrocar - The industry continues to face parts shortages due to the State Bank’s (SBP) restrictions on opening new letters of credit (LCs), resulting in plant closures and long delivery times for vehicles. However, industry players maintained their past practice of jacking up prices amid plant shutdowns, uncertain economic conditions and shrinking sales. Some assemblers even gave multiple price shocks in less than a month to offset overhead expenditures.

The eroding rupee value against the dollar has made parts import costlier, whose impact is being passed on to the consumers, but no one cares about giving any price relief to the buyers in view of the rupee’s recovery against the dollar. One dollar was equal to Rs 264.38 on February 16 as compared to Rs 276.58 on February 3 in the interbank market.

However, plants shut down by auto assemblers had resulted in the loss of 250,000-300,000 direct and indirect jobs in the auto vending industry at a time of soaring food inflation and utility bills. Pak Suzuki kept its plant closed for 40 days in the last six to seven months.

Plant shutdowns by assemblers have resulted in the loss of 250,000-300,000 direct and indirect jobs in the vending industry at a time of soaring food inflation and utility bills

CEO Indus Motor Company (IMC), Ali Asghar Jamali said "it is hard to predict future sales scenario as things are not visible regarding the opening of fresh LCs for parts and accessories. We do not know what is going on.”

He said despite a 50pc drop in production and frequent plant shutdowns, "our company has not offloaded any of the employees, not even drivers and low-salary people.” IMC has kept its plant closed for a total of 53 days, from August 2022 to February 2023. IMC’s sales plunged by 51pc in 7MFY23 to 21,877 units. "I think overall auto sales in FY23 will fall by at least 50pc, keeping in view the current situation,” he added.

On the possibility of a price cut as the rupee value gained against the dollar from February 3, he said "we do not know the situation ahead.”

A consumer auto finance banker in a private bank said, "we have witnessed a decline of around 50pc in terms of consumer footfall in the bank for auto financing from July 2022 to February 2023.”

In the plummeting auto financing trend, some buyers are picking up new vehicles on cash due to revised prudential regulations by the State Bank and rising vehicle prices. Due to late deliveries of new vehicles, customers are moving towards used cars and buying them in cash.

Buyers are also turning up for used car auto financing due to suspension in booking and thin availability of new vehicles, he added.

When asked which engine power vehicles are getting more orders for bank leasing, he said an increase in petrol and car prices plus a change of tenor from five to three years in financing have made customers opt for 1,000cc cars or below as they can be financed for five years. In used cars, the Suzuki Alto 660cc is the most sought vehicle among buyers.

He said, "we have not met our financing targets from July 2022 till date.”

Coordinating non-production days

Auto part maker, exporter and Director Mehran Commercial, Mashood Ali Khan, expects a 40pc drop in auto sales in the current fiscal year. "The year 2023 will be a most difficult year for the auto industry. The main reason is the trust deficit between all federal ministries and provinces and the business community.

"All assemblers must collectively coordinate a shutdown schedule that will save the vendor. Every assembler is operating a plant and announcing a shutdown on different days of the month. This is adversely affecting the vendors who are forced to continue opening throughout the month with no work. This is very hard for the survival of the vendors”, he said.

The best option is to have non-production days in all assembling units on specific dates to help vendors close on the same days to save operational costs, Mr Khan said.

Assemblers also need to assist small and medium enterprise vendors with financial instruments. Currently, only Toyota vehicle assembler has given an interest-free loan for nine months to its vendors, he added.

Purchasing used bikes may become daunting

Chairman Association of Pakistan Motorcycle Assemblers (APMA), Mohammad Sabir Sheikh, said people earning Rs25,000-35,000 were the main buyers of Chinese bikes on a monthly instalment basis. After the meteoric price hike of bikes as well as food items, they do not have surplus money to pay heavy instalments.

Bike sales fell by 17pc to 724,909 units from 874,161 in 7MFY22.

Mr Sheikh said costly Honda bike sales could be considered robust given its 12-month instalment plan, while Suzuki is also going well. Yamaha sales are going flat.

Mr Sheikh said people, who own cars, prefer three to four years old heavy bikes instead of new bikes as they think that it is better to move in a two-wheeler rather than on cars to save petrol and time. However, even people using bikes have restricted their movement as per their needs due to high petrol rates, which is evident from declining petrol sales, he said.

"I think Chinese assembled bike sales may remain in trouble as the prices have gone beyond the limits for many low and middle-class consumers,” Mr Sheikh said, adding that time is not far when purchasing used bikes will also become a daunting task as its price would further soar due to rising new bike prices. He said the Made in Pakistan Electric Vehicle Policy is required with the support of the federal government through investment in moulds, dies, jigs and fixtures for manufacturing of plastic body scooties, scooters and their parts immediately to save petrol import bill.

A Lahore-based auto assembler said the government is focusing more on revenue generation of Rs 170 billion rather than production closure and the massive drop in sales due to parts shortage and issues of LCs. No one cares about the alarming rise in unemployment. Low to large scale units depend on imported raw materials which take three to four months to arrive.

"From where the government will fetch huge revenue amid dwindling auto sales and plant closure. Raw material inventories are fast running out. How will the government survive without any revenue earning?” he questioned.