According to the Pakistan Automotives Report, the fiscal year 2008 witnessed a fall of 6.2% in total vehicle sales. The downward trend continued into the fiscal year 2009, with sales down by a huge 48% between July and December 2008. Compared to those of November, sales of December were down by 55%.
This situation is in direct contrast to the way things were shaping for the automobile industry of Pakistan in the year 2002. Pakistan Economist had noted back then, in one of its reports, that the car companies had increased their production in order to meet the rising demand from their consumers. To support this claim, it had quoted figures of Toyota increasing its production from 62 cars in January 2002 to 799 in July of the same year. Similar increases were cited for Suzuki Mehran. Overall, the industry had gotten a huge boost, with an increase in the production and sales of locally assembled cars by 42% and 21%, respectively.
However, it must be noted that the increase in demand for cars during the period mentioned was boosted by foreign remittances in the post 9/11 era, which increased the purchasing power of the average consumer. Moreover, 2002 was a time when the banking sector was also expanding and each bank was coming up with its own car financing scheme which consumers saw as a great way of purchasing their own cars.
Pakistan Economist also cited some key factors about the contribution of automotive industry to the economy of Pakistan circa 2002. The industry's annual contribution was estimated to be over Rs. 30 billion to Pakistan's GDP. Additionally, it was noted that this sector paid a whopping Rs. 8 billion in taxes annually. Plus, this industry as a whole also employed about 150,000 to 200,000 people.
The Economic Pakistan Blog has noted that the auto industry made up 2.8% of the total GDP in 2007 - and this figure was expected to go up 5.6% in the next 5 years. Total sale of automobiles amounted to Rs. 214 billion in the fiscal year 2006-2007. Total taxes paid by the industry amounted to Rs. 63 billion and 500 auto-parts manufacturers were estimated to be operating and supplying individual car parts to original manufacturers.
However, with respect to the current situation, this year's Pakistan Automotives Report had a gloomy forecast. The automobile market is expected to contract by over 32%. The worst hit among vehicles will be cars and buses - sales of both are expected to fall by 45% each.
So what are the car companies doing in this regard? The first and the most obvious move is a cut in prices. As reported in a Pakistani newspaper The Nation in April 2009, this is exactly what the car companies are contemplating - a prominent decrease in prices coupled with huge promotional campaigns to advertise the reduced rates. The idea is to make individual cars more affordable for the average consumer. Ghandhara Nissan Ltd., especially has reported to have already slashed its prices by Rs 0.1 million on different models for a limited period of time in an effort to drive up its sales.
With regards to the foreign manufactured cars and the impact on their imports, the Pakistan Autos Report also noted some key factors about the automobile industry. At present, there are only five companies which are manufacturing cars locally. These cars are mostly bought by domestic consumers and are not for export. Another major factor is that foreign cars dominate the total percentage of sales. For instance, different models of Suzuki made up a whopping 51.7% of sales in the fiscal year 2008. However, the first half of the fiscal year 2009 has witnessed a gradual shift towards an increase in sales for Toyota, as Corolla has become more popular with the consumers.
It was also pointed out by Pakistan Economist in 2002 that an “Auto Vendor Industry” was emerging in the economic scene of Pakistan. This industry was made up of the manufacturers of car parts and other car-related technology. Even back in 2002, the players of this industry were supplying original car parts to local companies as well as exporting their products to other countries. These exports were estimated to be Rs. 20 million per year.
The question which now arises is why can't the government stop the import of foreign cars and boost the Auto Vendor Industry so that more cars can be manufactured locally? The answer lies in the fact that Pakistan is a signatory to World Trade Organization (WTO) contracts. These contracts stipulate that import duties have to be gradually withdrawn not increased. This decreases the overall price of foreign cars plus makes it easier for them to penetrate the local market. How far can five local companies compete? One answer may be that they can do so by increasing their quality, but this would still require financial support from the government. Currently, the suggestion by the Ministry of Industries and Production to wave taxes for local car companies by 10% has its fair share of opposition. The Federal Board of Revenue also feels that if one sector is supported in this manner, others would also expect the same relaxations which may not be conducive to the economic environment.
Overall, considering the trends of the auto industry, some facts are obvious. In times of a recession, when the common man is already struggling with rising prices for essential commodities, cars do become a luxury item whose purchase can be postponed when easily affordable. Buying second hand cars is an easier option, as is selling one's current car and opting for public transport in the light of rising fuel costs. But in every country, there is a consumer segment that exhibits a non elastic demand for luxury goods and will purchase cars, irrespective of the state of the economy and this is what the auto industry can bank on while formulating its strategies to attract more customers. As for the rest of the industry (buses, heavy vehicles etc.), it is imperative for the analysts to conduct an in-depth market research about what the average consumer wants out of his vehicle and then to present the most cost-effective solution for the manufacturers. Ultimately, this is the only solution which can work to counter the penetration of foreign cars.
However, with respect to the current situation, this year's Pakistan Automotives Report had a gloomy forecast. The automobile market is expected to contract by over 32%. The worst hit among vehicles will be cars and buses - sales of both are expected to fall by 45% each.
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