The two-wheeler industry is on a recovery path from June onwards after losing sales in April and May due to the closure of plants and sales networks all over the country to curb rising Covid-19 cases.
Buyers, who could not purchase two-wheelers during April and May, have now gone wild despite the multiple price increases amid claims of higher localisation of 80-95 per cent. People have opened up their wallets despite the soaring cost of living on account of rising food prices and utility bills.
The handsome rupee recovery against the dollar from August 27 till to date has definitely lowered the cost of imports. One dollar now equals to Rs159-160 in the interbank market as compared to Rs168.44 in the last
week of August. Neither car nor bike assemblers have slashed prices and instead, keep jacking up rates from July till to date.
The market leader Atlas Honda Ltd (AHL) achieved a landmark by assembling and selling all-time high units of 116,024 and 116,000 respectively in October, breaking its own record of 115,972 assembled and 115,161 sold units in April 2018. AHL produced and sold 403,154 and 404,005 units during July-October 2020-21, up by 21pc each compared with the same period last fiscal year.
Buyers, who could not purchase two-wheelers during April and May have now gone wild despite multiple price increases amid claims of higher localisation of 80-95pc
This record-breaking saga by AHL did not help buyers in taking instant on-spot delivery of decades-old models of CG-125 despite its presence in showrooms. AHL’s authorised dealers say that the two-wheelers at the showrooms belong to the persons who had booked it earlier.
Dealers ask consumers to book CG-125 on full payment of Rs138,000 including registration charges and take the delivery within 20 days. They ask impatient buyers to pay Rs10,000-15,000 as “on money” or “premium” for quick delivery at non-AHL dealers.
Authorised dealers of Honda rule out their involvement in the on money game, blaming unauthorised dealers for the menace. However, market sources say that both authorised and unauthorised dealers have joined hands in making an instant windfall through this money.
AHL manages supplies of CG-125 from Sheikhupura Plant in Punjab and dealers get limited supplies which fail to meet burgeoning demand from the customers. “Trucks loaded with hundreds of CG-125 arrive from Sheikhupura and are sold out on the same day,” a dealer at Akbar Road says.
Sale of Honda bikes has revived in Karachi after the improvement in the law and order situation. A few years back, buyers were reluctant to purchase Honda bikes owing to the rising cases of snatching and theft due to the bikes’ good resale value, he added.
The issue of charging on money was confined to cars but in the last five years, this issue has also surfaced in Honda CD-70cc, Yamaha and Suzuki bikes whenever demand goes beyond the supplies. On money of up to Rs10,000 is being charged on a model of Yamaha bike and three models of Suzuki.
An authorised dealer of Yamaha and Suzuki, Mohammad Sabir Sheikh at Akbar Road said “growers have made good cash from vegetables, cotton, wheat, sugar, sugarcane, fruits etc, while the traders of these items have also generated extra cash by selling commodities at higher prices. The rising inflow of home remittance has further improved consumers’ liquidity situation. All these indicators suggest that a massive amount of cash has flowed into the auto market,” he said, adding most of the people are purchasing bikes on cash rather than through instalments.
Sales of United Auto Motorcycle, country’s second-highest bike assembler, grew by 18pc to 134,120 units in July-October 2020 while Road Prince bike sales also rose by 19pc to 51,099 units in the first four months of the current fiscal year. Amid the boom in demand, Suzuki and Yamaha sales went up by 4pc and 22pc to 6,628 and 6,823 units respectively.
As per the data of large scale manufacturing, the country’s total bike production in the first quarter of the
current fiscal year increased by 18.67pc to 588,765 units. Total bike production in 2019-20 fell by 23.5pc to 1.881 million units.
Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam), Abdul Rehman Aizaz said the bike industry and its vendors are facing new challenges.
The price of aluminium alloy (a raw material used for making bikes’ hubs and engine housing) has risen by 20pc since its manufacturers are exporting to China to enjoy import duty benefits under the Free Trade Agreement between the two countries. The congestion at ports all over Asia since the last week of September has made the procurement of raw materials and sub-components from foreign supplies a difficult task. Sea freight cost from China has also swelled to $2,000 per 20 feet container from $600-700 in the last two months, he said.
Due to worldwide disruptions in the supply chain, raw materials like aluminium, copper, steel and plastic have registered a jump of 40-50pc from July 2020 till date, causing a hike in input costs for auto-parts makers, he said. Furthermore, the value of Pakistani rupee has risen from August 27 till date while the Chinese currency has also gained ground against the dollar by 7pc in the last four to five months, resulting in higher raw material prices. Previously, one dollar was equal to 7.2 yuans but now the exchange rate is at 6.6 yuans. “The rising input cost of imported raw materials has offset the impact of the falling cost of import on account of rupee’s appreciation against the dollar,” said Mr Rehman.
Paapam members are facing problems in managing cash flows. Most of the raw materials used for manufacturing auto parts are listed in part three of the recently introduced schedule 12 under the Finance Act 2020, thus attracting 5.5pc withholding tax meant for finished products.
All the raw materials used for manufacturing auto parts are imported under the Statutory Regulatory Orders (SRO) 655, issued and verified each year by the Engineering Development Board (EDB). Under the SRO, raw materials’ concessionary duties are applied and regulatory duty is exempted on imports that support manufacturing. However, due to the classification of verified raw materials as finished goods under schedule 12, it is resulting in sapping up cash flows and accumulation of adjustments/refunds with the Federal Board of Revenue (FBR).
He said the EDB has also written to the FBR in July, confirming that the materials imported under the SRO 655 are raw materials for the auto part industry. However, these are still classified as finished goods and thus charged withholding tax. The Paapam chief said the removal of additional customs duty and reclassification of imported raw materials under SRO 655 in part 2 instead of part 3 would help in reducing the additional burden on part manufacturers.
Published in Dawn, The Business and Finance Weekly, November 23rd, 2020