Auto sector to cut output as sales slump

Updated January 22, 2019

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Many blame the ban on sale to non-filers of tax returns. ─ File photo
Many blame the ban on sale to non-filers of tax returns. ─ File photo

LAHORE: The country’s three major auto assemblers are revising down their monthly production schedules from this month anticipating a significant sales slowdown in the second half of the current fiscal year.

The Pakistan Automotive Manufactures Association (Pama) said the move comes on the back of a budgetary restriction that bars manufacturers from selling automobiles to non-filers.

“The impact (of the ban on sale to non-filers) has started to creep in. I, for one, expect the country’s car market size to shrink by 10 per cent by the close of financial year. The industry’s growth momentum has just vanished and now it is facing a downward trend in sales,” said Ali Asghar Jamali, the vice chairman of Pama and CEO of Indus Motor Company.

“Yes, we have revised our production schedule and will produce around 1,000 less cars during January against the planned production for the month,” Mr Jamali said.

Many blame the ban on sale to non-filers of tax returns

Talking to journalists, Mr Jamali did not give the exact number of vehicles his company planned to roll out during this month but stressed that the slowing sales trend meant his company (which makes Toyota cars and jeeps) would end up selling 62,000/64,000 units this year — almost the same sales level it had achieved last year — against a target of 72,000-74,000 units.

When approached for a comment, Suzuki’s spokesperson told Dawn the company has suffered 32pc production and sales losses.

The restriction on sale of cars and land valued in excess of Rs5 million to non-filers was originally imposed by the previous PML-N government in 2018-19 budget to force people to file their tax returns. Since coming into power, the PTI tried to lift the bar in the ‘Supplementary Budget’ in September 2018 but gave in to the pressure from opposition in the parliament.

Meanwhile, the impact of downward revision of orders from original equipment manufacturers (OEMs) has started to hurt auto vendors.

At Al-Badar Engineering, a leading supplier of parts to car and motorcycle manufacturers the management has already laid off a third of its workforce. “The last three months have been tough for our business. The overall economic slowdown in the country during the last quarter of 2018 and the massive currency depreciation that forced both car makers and producers of cheaper Chinese brands of motorcycles to drastically jack up prices has compelled us to cut our costs and work two shifts a day instead of three,” Al-Badar’s Deputy General Manager Inam Ullah said during a visit to the factory on Sheikhupura Road, some 30km from Lahore.

The company may have to cut more jobs if the trend didn’t reverse by the end of March, he added.

Sales slowdown

The three car assemblers produced 113,494 cars and jeeps of different engine capacity in the first six months of the present financial year but sold only 104,038 units. This compares with production of 107,787 units and sale of 103,432 units during the same period in the last fiscal. Suzuki, which monopolises the 800cc and 1,000cc segments, has been the worst hit by the slump in car sales and has built up a large inventory, especially of Suzuki Mehran. The company could sell only 75pc of the 22,298 units of this popular ‘middle-class’ small car it produced.

When contacted, Syed Nabeel Hashmi, a former Paapam chairman, insisted the actual impact of slowing trend in the automotive industry would start reflecting in the industry sales numbers for January. “Our business has contracted to some 40pc. The OEMs are revising their orders on a weekly basis. By the end of this quarter in March we fear the automotive market to shrink by 30pc unless the government removes the restriction. If the government thinks someone is evading tax it should punish them instead of taking away the fundamental right to sell and purchase an automobile or a piece of land. It has stymied market growth by imposing this tax non-filer ban,” he said.

Lahore Chamber of Commerce and Industry President Almas Hyder was also critical of the ban, arguing that the objective of any government action should be to broaden the tax base and document the economy, and not create an atmosphere of fear in the markets or thwart growth. “The government must make a distinction between non-filers and non-taxpayers,” he said, urging the finance minister to revoke the ban in the mini budget being presented on Wednesday.

Published in Dawn, January 22nd, 2019