Auto sales expected to trim in August

KARACHI: The auto sales of local assemblers continue to show a declining trend as August volumes are anticipated to decline 21 per cent to 9,200 units on a month-on-month basis.

Farhan Mahmood at Sherman Securities said that the exorbitant increase in the car prices amid rupee depreciation, record increase in leasing rates and higher taxes remained the major reason behind demand destruction.

The car production also remained affected on a monthly basis, down 35 per cent due to extended plant shutdowns of about 13 to 14 days during August, as per notices filed by Indus Motor Company Limited (INDU) and Pak Suzuki Motor Company Limited (PSMC), amid restricted import formula regarding completely knocked down units (CKDs).

However, adequate inventories fulfilled demand requirements.

Company wise data shows the INDU to post sharp recovery in the sales, up 64 per cent on a month-on-month basis to 3,900 units, due to improvement in the sales of both Corolla and Yaris.

“PSMC sales are expected to plunge by 48 per cent to 3,500 units. We believe that Alto remains the key variant of the company (being fuel efficient) as the company is expected to face supply constraints and thus could not meet demand,” Mahmood said.

However, the company is expected to have adequate inventory levels for the rest of its brands, he added.

“Similarly, the sales of Honda Cars (HCAR) to post a decline of 29 per cent to 1,800 units mainly led by Honda City while Civic is expected to post slight recovery in the sales. However, we believe that HCAR will be in a tight spot as far as inventory is concerned,” Mahmood noted.

Interestingly, on a year-on-year basis, all the assemblers posted a negative growth of 56 per cent, as the highest decline of 71 per cent is anticipated in the sales of PSMC, followed by HCAR with 44 per cent and INDU likely to post a decline of 31 per cent in sales.

Mahmood believes that the car assemblers are likely to maintain around 60 per cent of the production level as directed by the government due to restrictive CKD buying, as allocated CKD imports of upto around 70 per cent of production levels have been achieved during the last four months.

“Considering existing demand, restrictive buying on CKDs may not hamper or create any hurdle for local assemblers. However, global shortage of CKD for few specific models may affect overall operations of the company.

We believe that the economic slowdown, rising inflation and hike in car prices has taken its toll on consumers’ purchasing power which is now affecting car demand in Pakistan. Just to recall, car prices of major brands have increased 8 per cent to 16 per cent in August,” he said.

The government may consider lifting the import restrictions regarding CKDs of the auto sector since demand is sharply reduced due to above mentioned factors, Mahmood said, adding that the CKDs imports for auto cars fell 54 per cent to $68 million in July 2022, as against the average monthly imports of $148 million during May-Jun 2022.

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