2008 termed a horrible year for auto industry

[LRE]

Auto sales to decline by 48pc: analyst



Saturday, January 31, 2009
By our correspondent

KARACHI: The current fiscal year ending in June will turn out to be more depressing and challenging for local car assemblers. With the weakening economic fundamentals and credit crunch, auto demand is likely to remain depressed in the short run, stated Atif Zafar, auto analyst at JS Research.

“After looking at the trend of the last six months, we now believe that car sales will decline by 46-48 per cent in FY09. Thereafter in FY10, a recovery of around 12 per cent is likely. Declining sales and rising input costs amid appreciating yen will cause earnings of our sample companies to decline sharply in FY09,” he said.

“Moreover, a positive impact of falling steel prices, a major cost constituent of the automobile industry, has been offset by rupee devaluation.”

Political and economic instability, hike in car financing rates and most importantly increase in car prices are the major contributors to the massive decline of auto demand.

In the first six months (Jul to Dec 2008) of FY09 car sales showed dismal figures, depicting a decline of 48 per cent to 36,079 units over the corresponding period of last year.

“Therefore, we believe local car sales will decline more than our initial estimate. In the long term, we expect things to improve and expect a CAGR (Compound Annual Growth Rate) of 14.6 per cent over FY10-13 as car penetration is low at only 11 cars per 1,000 people in Pakistan.”

With government looking to harmonize its policies to curb luxury spending with the aim to reduce import bill, sales of imported cars have also depicted a major decline.

One such measure taken recently by the government was the reduction in the monthly depreciation rate of imported cars from two per cent to one per cent. This measure will make imported cars more expensive which will dent the already sluggish demand of imported cars.

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