Yellow cab scheme to boost auto sale by 9 percent

LAHORE: Auto sales is likely to increase by 8-9 percent on the back of the Punjab government’s announcement of providing 20,000 cabs on concessional rates and lower prices post the budget, experts said.

However, they added that higher share of imports due to policy relaxation in Jan 2011 and prevailing high interest rates can be serious drags in FY12. There are also chances of improvement in margins for local assemblers because of the cut in taxes not being fully passed through and the availability of forward cover facility.

With the government announcing a cut of 3.5 percent in taxes from July 1st, auto sales registered in a significant fall of 43 percent MoM in June. The fall was primarily fed by a 65 percent decline in PSMC sales, which are relatively more sensitive to price changes. Indus Motors (INDU) and Honda Car (HCAR) sales also witnessed declines of 8 percent MoM and 17 percent MoM, respectively.

While FY11 witnessed 1) unprecedented floods in Jul and Aug, 2) relaxation of auto import policy and 2) production cuts due to supply side issues emanating from earthquakes in Japan, auto sales were recorded at 3 percent higher than last year and also surpassed our beginning of the year target by 6 percent. This improvement in sales was largely fuelled by strong rural income owing to rising agricultural commodities prices. PSMC and HCAR sales increased by a respective 8 percent and 10 percent; however INDU witnessed a decline of 2 percent in its sales.

Pak Suzuki (PSMC) sales witnessed the sharpest decline (-65 percent MoM) owing to its higher share in lower end vehicles in June, which are more sensitive to price changes. Albeit this decline, the auto industry rounded off FY11 with an increase of 3 percent YoY in sales, with substantial improvement in farmer income aiding its cause.

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