‘A remarkable year for the auto sector’

The outgoing calendar year 2021 turned out to be a massive recovery period for the auto sector despite an ongoing pandemic, as car sales soared by 90% during the period from January to November.

A pickup in economic activity boosted demand for automobiles, with lower interest rates encouraging greater auto financing.

Speaking to Geo.tv, Arif Habib Limited auto analyst Arsalan Hanif said: “2021 was a remarkable year for the automobile sector as volumes increased during 11MCY21 to 210,048 units compared to 110,540 units in the same period of the last year.”

“The surge in sales can be attributed to improving economic conditions in rural areas because of higher prices of agricultural products, the bumper output of major crops, and improving purchasing power parity,” he said, elaborating on the reasons behind a 90% increase.

Hanif said that sales numbers also saw a boost due to a low base effect (2020 was a disastrous year due to the pandemic). 

Meanwhile, the federal government extended relief measures by decreasing the federal excise duty on vehicles across the board and reducing sales tax for cars with smaller than 1,000cc engine capacity, which resulted in a reduction in car prices and thereby boosted sales. 

The government's policies also encouraged the launch of new models — Honda City, Changan Alswin, Proton Saga, X70, Hyundai Elantra, Hyundai Sonata, KIA Sorento, KIA Stonic — which kept sales volumes upbeat.

During the period under review, sales of two-wheelers (motorbikes etc) too increased by 30% year-on-year to 1,707,348 units in 11MCY21 compared to 1,317,635 units 11MCY20. 

Two-wheeler sales volume growth was led by Suzuki (+93% year-on-year to 29,192 units), Atlas Honda (+42% year-on-year to 1,237,631 units), and Yamaha (+27% year-on-year to 19,362 units).

Meanwhile, volumes of three-wheelers (rickshaws) dropped by 10% year-on-year to 41,555 units compared to 45,943 units in the same period last year.

The analyst highlighted that during the first half of the year, despite an increase in raw material cost and higher freight charges, automobile manufacturers kept prices constant due to the appreciation of the Pakistani rupee against the US dollar, which allowed them to absorb the impact of higher raw material costs.

In the federal budget 2021-22, the government also reduced sales tax from 17.5% to 12.5% for below 1,000cc category while reducing federal excise duty across the board to make cars more affordable.

“As a result, OEMs passed on the impact to consumers and decreased car prices in the range of Rs75-200,000 per vehicles,” Hanif said, adding however that after the rupee started losing its ground against the dollar, OEMs increased car prices — major names being Toyota, which increased car prices by 6% on average, Honda 7%, KIA 10%, Pak Suzuki 14%, and other players followed the same.

During the outgoing year, Pakistan witnessed double-digit growth in auto financing numbers; however, Hanif underlined that recent change in auto financing regulations to achieve sustainable growth, an attempt to reduce pressure on imports, together with adopting monetary tightening (a cumulative increase of 275 basis points in the benchmark interest rate) will limit growth going forward. 

He cited rising interest rates, soaring inflation, rupee depreciation, increasing price of raw materials, shortage of semi-conductors, freight charges and container shortages as the major challenges faced by the auto sector during 2021.

Moving forward, the auto expert said: “We expect automobile volumes to register record high volumes and they are expected to cross 300,000 units [including volumes of non-Pakistan Automotive Manufacturers Association (PAMA) members] in 2022.”

“New auto policy will attract new players to invest in Pakistan and manufacture environmental friendly cars as the main focus will be on hybrid and electric vehicles,” he predicted.