Pakistan Autos Report

Political turmoil in Pakistan, in tandem with the gobal economic downturn, have delivered a double whammy to car sales and production in the country.

Sales of new vehicles in Pakistan underwent a decline of 34% y-o-y in fiscal year 2008/09 (July-end June), with total sales registered at 163,479, compared to 247,160 in fiscal year 2007/08. This was largely in line with the forecast that we made last quarter (just under 167,000 for the fiscal year).

Although data from the Pakistan Automotive Manufacturers Association (PAMA) for July 2009 shows a rise in sales of passenger cars and light commercial vehicles of 33% y-o-y (to a total of 9,896 units), data for the month was reportedly distorted by a production discrepancy related to the discontinuation of a model. Nonetheless, it appears that auto sales in the country have bottomed out, looking at data on a month-on-month view over the last few months. Indeed, the July figures show the fifth consecutive m-om rise in sales. Compared to June, vehicle sales rose by 9%. Two key factors appear to be supporting sales: the removal of a 5% Federal Excise Duty on cars of 850cc and above, and a reduction in prices by Pak Suzuki on cars falling into the sub-850cc bracket. However, the supportive effect of both these factors is temporary, and is likely to dissipate as we move later into what is still, at the moment, a very fresh fiscal year. Moreover, economic growth remains very sluggish - the latest forecast by our Country Risk team is that Pakistan's economy will grow by just 2.5% in real terms in FY2009/10. More to the point, we forecast that private consumption growth is likely to decelerate this fiscal year, to 2.5%, from a relatively buoyant 5.2% in FY2008/09. With that in mind, we remain cautious about the trajectory of new vehicle sales in Pakistan in FY2009/10 and currently predict a rise of 2.4% y-o-y to 167,424 units.

Production of new vehicles in FY2008/09 was down 33% y-o-y, as output of CBUs registered 165,158, compared to 247,036 in FY2007/08. This cliff-fall figure is reflective of the performance of domestic sales, as Pakistan's auto production is largely geared toward serving the home market, with exports accounting for only a small proportion of output. We would expect production in FY2009/10 to lag domestic sales, with a fall of 6.1%, to a total annual production volume of just above 155,000 CBUs. This is due to CBU inventories being built up during FY2008/09. Although production and domestic sales volumes were very close in numbers last fiscal year, unsold locally produced cars accumulated, as while exports of Pakistan-produced cars are low, while the demand for new imported models - largely to cater for the luxury end of the market - is moderately high.