Auto sales rise 61% in July on budgetary measures

KARACHI: The new fiscal year has kicked-off on a positive note for the car manufacturers as auto sales have surged by a significant 61 percent in July 2011.

According to the latest numbers released by Pakistan Automotive Manufacturers Association (PAMA), the country’s auto sales surged by a significant 61 percent to 17,563 units in July 2011 as against 10,942 units in the same period last year, on monthly basis; the volumetric sales improved by 134 percent compared to 7,517 units sold in June 2011.

This significant improvement is primarily attributable to deferred sales from June to July as buyers opted to take advantage of 2-3 percent reduction in prices on account of reduction in sales tax by 1.0 percent and other measures announced in federal budget FY12. Company-wise break-up shows that PSMC led the increase with 116 percent rise to 11,997 units compared to 4,503 seen in the same period last year, while sales for Indus declined by 9.0 percent to 4,551 units as compared to 4,999 units in July 2010.

Analysts view that July sales are not an actual depiction of the sector’s fundamental and they are expected to ease down going forward. Furthermore, amid absence of aggressive consumer financing due to higher mark-up rates and nominal growth in agriculture economy the volumetric sales for FY12 will only show an improvement of 5-10 percent.

Despite improved volumetric sales, analysts believe that the sector may face difficulties on account of strained margins amid continuous appreciation of Japanese yen and high regulatory risk. Analysts expect that auto sales in FY12 will stand in the vicinity of 165,000 units, up 13 percent from FY11. However, they highlight further relaxation in the auto import policy as a key threat to estimates. Recent news flows suggest that the government is contemplating allowing commercial import of vehicles in the upcoming trade policy.

However, the first month of FY12 started on a disastrous note for tractor makers with sales plunging by 81 percent, while car and two to three wheelers’ sales surged by 51.6 and 14 percent, respectively. Sales of trucks and buses plunged by 52.5 and 50 percent, respectively while 141 percent jump was witnessed in sales of light commercial vehicles. Total tractor production in July 2011 dropped to 1,732 units as compared to 5,688 units while sales fell to 1,036 units from 5,468 units in July 2010.

Fiat production and sales declined to 635 and 309 units in July 2011 as compared to 2,822 and 2,816 units in the same month of last fiscal year. Massey Ferguson production and sales dropped to 1,079 and 727 units in July 2011 as compared with 2,866 and 2,652 units in July 2010.

The imposition of 16 percent sales tax is finally making its impact as tractor makers are facing dearth of fresh orders from growers and farmers. As a result, Al-Ghazi Tractors has already suspended its production for the last one month due to unsold stocks parked at plant and countrywide dealership network while Millat Tractors is already running at 50 percent capacity. The Ministry of Industries is yet to take an action on partial reduction in prices by the assemblers after the budget and recent increase in prices. Dealers in used cars have been asking the government to carry out an investigation against the assemblers for not fully passing on the impact of budgetary measures to customers besides increasing the prices on rupee-yen parity.

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