Pakistan Automotives Report Q1 2007

With the first eight months of FY2006/07 (running Jul-Jun) gone, Pakistan's automotive industry is on track to meet the forecasts set out in BMI's recently-published Pakistan Automotives Report. After a mixed performance in the first half of the financial year, during which leading manufacturers Honda Atlas Cars and Daewoo Farooqi Motors registered declines of around 42% year-on-year (y-o-y) each, while Indus Motor Company and Pak-Suzuki Motor Company raised sales by 31.33% and 18.41% respectively, BMI reduced its outlook to project growth of 5% (car sales are set to rise by just 2.8%), while we have maintained our output growth forecast at 2.8%, with car production within that total up 3.1%. Output in the first half of FY2006/07 was also higher than the first half of the previous financial year at 77,452 units, up 6.09%. Indeed, production will be supported over the coming years by the government's new Auto Industry Development Plan (AIDP), which envisages an increase in the industry's annual output from 200,000 units to 500,000 units by 2011. The plan is intended to improve the domestic automotive industry, through the development of local capacity and auto 'clusters'. However, another move by the government may act as more of a threat to the local industry. The decision to lift certain restrictions on the import of used vehicles under the gift scheme should result in more second-hand vehicles entering the market, which, according to the commerce ministry, will make up for the shortfall between demand and supply for vehicles. However, the Pakistan Automotive Manufacturers Association (PAMA) and Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) have voiced their concerns that the new rules will impede the growth of the domestic industry. Projects such as the AIDP have greatly increased Pakistan's potential in terms of output growth, although the country still lags in 10th place in BMI's Business Environment Ranking for the automotive industry in the Asia Pacific region. The plunge in sales growth from 19% in FY2005/06 to a projected 5% in the current financial year suggests that it could be hard for new entrants to gain a foothold in a slowing market, particularly as rising inflation will need to be curbed by monetary policies, which are likely to rein in spending. The market does score slightly higher than the regional average for its regulatory environment, however, due to the government's involvement in trying to develop the industry through the AIDP.

In terms of the industry's competitive landscape, Pak-Suzuki is the dominant force with sales of 56,860 units for the first eight months of the financial year. The Suzuki Mehran was the best-selling model for the period, with sales of 22,953 units, although it was closely challenged by Toyota's Corolla on 22,683 units. Hyundai achieved modest sales of 2,380 for the Santro model, although the South Korean firm cut back on production of the Santro, with output falling to double digits during September, October and November, and no units at all produced in December and January. By February, monthly output had returned to 150 units.