Analysis: Pakistan automobile industry
Rising global commodity prices increases cost of production in almost every sector especially in automobile. In Pakistan, high input prices forces car manufacturers to increase prices so that the burden of input cost rise can be transferred to consumers.
Hike in automobile prices
In Pakistan, auto makers are able to increase car prices when they want. To maintain dwindling margins, three local automobile manufacturers have increased their prices by 2 to 3 percent in the year 2011.
Pak-Suzuki Motors has started the trend by increasing prices of cars from Rs 11,000 up to Rs 25,000 effective from February 1, 2011.
It was followed by Indus Motor Company (IMC) as it pushed up the prices by Rs 20,000 to Rs 30,000 (2 to 3 percent) of all of its models except Toyota Corolla 2.0D Saloon and Saloon SR with effect from July 25, 2011.
However, Honda Atlas Motors has also increased the prices of its various models by Rs 20,000 to Rs 25,000 with effect from August 4, 2011.
Automobile production & sales
According to the data issued by Pakistan Automobile Manufacturers Association (PAMA), total production of automobile including (cars, trucks, bikes, tractors, buses, pick- ups and jeeps) jumped to 1.066 million or 12.14 percent during the year 2010-2011 while, total sales climbed up by 10.40 percent to 1.054 million.
Car production rose by 10.13 percent to 133,972 cars. However, sales of cars went up by only 3.22 percent to 127,944 cars during 2011. Rising prices of cars de-motivates consumers from buying local cars. On the other hand, reduction in duty on import of second hand cars shifted consumers towards imported cars which are relatively cheaper.
Car sales have been down since last two years which makes it difficult for local manufacturers to generate revenues and makes it complicated to maintain the prices at current levels. The rising demand by agricultural sector provides the opportunity to manufacturers to cater this segment.
Challenges faced by the industry
Major challenges faced by the local car manufacturers and assemblers are appreciating cost of yen and rising raw material cost. According to local manufacturers, the industry has been absorbing ever rising costs of inputs since months, now it has become difficult for them to bear the additional burden. That is why; they have to put the cost rise over to the consumers.
Yen has seen appreciation against rupee since July, 2011 till date by 6.5 percent, as in Pakistan most of the manufacturers use Japanese parts.
To meet the quality and standards for car manufacturing, local Original Equipment Manufacturers (OEMs) are compelled to import metal sheets at higher prices from Japan which further add to the burden that manufacturers have to face alone.
US dollar has increased against rupee by 8.32 percent from July 1, 2008 till July 1, 2011 while, Rupee has depreciated 18.49 percent against Japanese Yen during the same period. This coupled with the stagnant industry growth has troubled OEMs.
In the international market, the rate of steel has increased by 27 percent from $586 to $746 per ton while the rates of polypropylene increased by 67 percent, aluminum by 35 percent, copper by 24 percent and lead by 45 percent respectively.
Role of government
Government's role is negligible to support local industry. Government reduced 1 percent tax on automobile sector to support their business, but auto makers may have to keep on increasing cars prices on the back of rising input cost and unfavorable exchange rates.
Though government is encouraging foreign investments in automobile sector and for that, it has assured Japanese automobile giant Yamaha of full-co-operation for its $150 million investments in Pakistan.
Future outlook
With ease in policy rate and relaxation in General Sales Tax and abolishment of Special Excise Duty, the auto makers can take a sigh of relief and have reduced prices in the short run to lift demand. But, appreciating yen value against US dollar could let local automakers' profits under pressure which may entice them to push up prices further to transfer the burden on consumers. Moreover, uncertainty with respect to steel prices will be another major risk for them.
Comments
Post a Comment