Abstract
Pakistan' s automotive sector remains in a slump, supporting BMI' s bleak
outlook for the industry in its
latest Pakistan Automotives Report. After
total vehicle sales fell by 6.2% in FY08, the industry has not
recovered:
sales for the first eight months of FY09, July 2008-February 2009, were down
by 44% yearon-
year (y-o-y) to 66,629 units for cars and light commercial
vehicles (LCVs), while compared with
January, sales for February fell by
19%. Passenger car sales for the period were down 48% y-o-y to
54,660
units. The new vehicle market downturn fits with BMI' s forecast for a drop in
sales of cars and
LCVs to around 112,000 units. We expect the market to
contract by over 32% with the worst damage
done in the car and bus
segments, which we forecast to fall by 45% each.
A major hurdle for the
industry is a lack of a clear government strategy to prevent collapse.
Pakistan' s
Economic Coordination Committee (ECC) considered a tax cut of
10% for domestic carmakers, which
had been suggested by the Ministry of
Industries, Production & Special Initiatives. However, no further
news has
been reported and the Federal Board of Revenue (FBR) is apparently against
supporting
individual sectors as this would prompt other industries to
seek help. Indus Motor (IMC), which
represents Toyota Motor, has taken the
opportunity to try and gain something positive from the
downturn. The
company has launched its third Toyota Technical Education Program to provide
training
for technicians. Indus believes that declining sales will create
increased demand for after-sales services.
The poor state of the industry
is reflected in BMI' s Business Environment Rating, with Pakistan in last
place on 42.4 out of a possible 100. The market is held back by low production
growth potential and an
average rating for sales growth. However, as a
signatory to the Trade Related Intellectual Property Rights
Agreement
(TRIPS) under the auspices of the WTO, the country' s regulatory environment
scores well. A
number of free trade agreements (FTAs) also contribute to
this, although forming these with non-Asian
countries would improve the
rating further. Despite low marks for bureaucracy and corruption, the
market
does score well for its long-term economic risk and policy
continuity.
Japanese manufacturers control most of Pakistan' s passenger
car production and sales. Figures for FY08
show that Suzuki Motor-brand
models represented 62% of total passenger car production and 51.7% of
sales. The Suzuki Mehran also won back its place as Pakistan' s best-selling
model after losing out to the
Toyota Corolla in the previous financial
year. The Corolla struck back in the first eight months of FY09,
however,
selling 14,654 units compared to 6,509 for the Mehran. Honda Motor is
Pakistan' s third-largest
car producer and has an 8.6% share of sales.
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