PAKISTAN’S small automotive market saw months of robust growth recently as the market size of locally assembled cars, jeeps, commercial vehicles and vans increased to 260,000 units in 2017-18; but all that is about to change.
Coming after months of robust growth in sales, the big drop in August automobile purchases could be a sign of a looming collapse paralleling that of 2008-09 when automakers saw the market size shrink to 82,844 units from 164,650 units a year earlier.
The new industry report shows a sharp decline of 17 per cent in the sale of cars, LCVs, vans and SUVs across all three Japanese auto assemblers — Toyota, Honda and Suzuki — with low-priced, economy vehicles (below 1000cc) experiencing the steepest fall of 20pc in August from a month ago. Overall, industry car sales plunged 18.5pc as the economy segment witnessed an above 20pc decline. The 4x4 market increased by almost 18pc but pick-up truck sales dipped around 16pc.
Suzuki Motor Company that virtually monopolises the economy market saw its sales sink by 23.4pc followed by Honda Atlas Cars (Civic, City and BR-V) by a fifth. Indus Motor Company, which assembles Toyota cars and jeeps in Pakistan, suffered eight per cent loss in its sales.
Both Toyota and Honda make 1300cc and above vehicles. Suzuki, only a few hundred cars with engine capacity of 1300cc as it has focused on the smaller cars since its inception. Suzuki experienced the highest sales losses of 26pc in the car segment below 1000cc (Mehran and Bolan) followed by a 20pc decline in the market of its pick-up, Ravi. The company’s 1000cc segment, Cultus and WagonR took a hit of 13.6pc.
‘The government policy of banning sales to non-filers will hurt existing car makers. It is also going to hit new brands like Kia, Hyundai, Reno and others that are making substantial investments in their assembly plants,’ underlines Mr Hashmi
Similar trends were observed in the imported used cars market as small car sales dipped significantly in July on a year-on-year basis, according to available import numbers.
“Several factors have led to low auto sales last month despite a robust domestic demand,” insists a prominent Lahore-based auto parts producer and exporter, Syed Nabeel Hashmi. “The industry was expecting this because of the government ban on sale of new cars, including the used imported cars not registered in Pakistan before, to non-tax filers.”
Others agree that the government restriction that prevents first-time registration of new local and used or new imported vehicles to a non-filer was the most significant factor resulting in the contraction of the market.
The ban came into effect from July 1 this year. Consequently, car makers had to cancel several thousand orders from non-filers who can buy a local or imported car only through banks.
“Other factors like (economic and financial) policy uncertainty in the wake of a change in government, price hikes by local assemblers to absorb the impact of rupee depreciation since December last year, consumer expectation of new models and variants, seasonal factors like Eid, end of Kharif season and so on also played a role but the non-filer sales ban has proven to be the proverbial straw that broke the camel’s back,” argues an auto industry analyst at the AKD Securities, Ali Asghar Poonawala.
Amir Allahwala, a leading Karachi-based auto parts producer, says the sharpest decline in the sale of vehicles with 1000cc and below engine capacity underscores the impact of the tax non-filer sales ban on the car market, a segment dominated by people who do not pay taxes or file returns.
“This restriction is going to have a very significant effect on the size of the car market in Pakistan with tax filers constituting less than one per cent of the total population. The market size could halve as the impact of the ban spreads over the cars above 1000cc engine capacity over the next few months once non-filers are thrown out of it.”
Rising prices of new locally produced low-priced vehicles could be another reason, albeit less significant than the non-filer sales ban, for the August decline.
No exact data is available on how many locally assembled or imported vehicles are sold through lease or on cash. But the industry estimates that only a fifth buy their cars on lease because of higher interest rates. Some contend that the government restriction could force non-filers to purchase cars from the used car market, allowing investors make huge profits.
There are reports, according to Mr Poonawala, that point to additional levies on imported vehicles and reduction in maximum allowed years of depreciation for used cars as the government takes measures to reduce the bulging trade deficit. “But the non-filer sales ban will be the key to determining the size of the market for domestic assemblers.
“The government policy of banning sales to non-filers will not only hurt existing car makers. It is also going to hit new brands like Kia, Hyundai, Reno and others who are making substantial investments in their assembly plants,” underlines Mr Hashmi.
“If the demand shrinks, as we expect it to going forward, on the back of government curbs, the new players are likely to feel the heat as well. There will be blood when existing and new car makers try to maintain or capture a share for themselves in the shrunken market. The dream of producing half a million cars in the country by 2023 will be over soon.”
Published in Dawn, The Business and Finance Weekly, September 17th, 2018
Comments (12) Closed
First of all they need to revise their prices as per Dollar to rupee ratio.
So, basically the interest is in selling to attract more buyers who will be able to sell at a profit to the would actual users? The game is to continue for the sake of minting extra money from the public.
It will be a temporary phase and will assist the government to ensure people come into the tax net. Many factors behind people buying cars which is a necessary commodity- however pressure tactics by car makers and dealers who are crying because their profit margins are down, will try to mislead the nation through propaganda about government policies. For any nation to survive, everyone must be a tax filer - simple as.
It's good news, people who do not pay tax and do not file tax returns, have no right to own a car.
Reduced sales for cars is a lame excuse to withdraw buyer's tax filing requirements. Moreover, we should promote more efficient public transport instead of cars to tackle our oil import bill as well.
Cars upto 1000 cc should be exempt for this restriction. Anyone should be able to buy such cars irrespective of filing status.
I am a small shareholder in Indus motor Company. While the policy will indeed hurt the company and me as sales with be down I have the view that (like democracy) government policy should be made to benefit the most number and people and the least well off first and then the well off sections of society. The writer does not even bother to touch on the the wider benefit of having a large tax bases - starting with the ones that can afford to by cars!
Despite the fact that I will be personally worse off because of this policy; I support it as it is for the greater good.
There should be a license to own a private car. Government builds infrastructure for them, imports extra oil, they are washed with precious water just to look good, pollutes the country. And everything is paid by people who can't ever buy a car. The license should have a yearly fees according to the value of the car. Each car should have a separate license. That is the best way to curb extra consumerism that costs huge amounts of foreign exchange, and will also diminish corruption significantly. You'll not to dig people's account to find corruption money, you'll find it roaming on the roads.
The whole purpose of this excercise is so that non filers become tax filers. It’s hilarious that people are taking about skunking demand, shrunken market etc.. why don’t people start filing taxes???
This is another way to increase corruption and to hurt the business industry at the same times. Looks like government hires the stupidest of the stupid from the society to make policies. To catch or impose taxes first fix government departments otherwise every effort is useless. Every apartment or house and every shop or warehouse or factory building need to be taxed afford able which people can pay through banks only with property tax numbers. Tax needed to low. Whoever doesn’t pay computers automatically will show them as not paid and no one should be given special status which leads to corruption.
@BAXAR Motor vehicle tax is already paid for these purposes.
So you mean to tell us that these car manufacturers are not running a parallel book of accounts for non-filers?
I don't believe it for a second.
Of course they're not going to tell journalists that though. That could get them into trouble.