Pakistan Real Estate Times - Pakistan Property News

2008 termed a horrible year for auto industry

By Tanveer Ahmed

KARACHI: Analysts paint a depressing picture for the local auto industry and for its backward and forward linkages, as the global economic crisis, record inflation and massive depreciation of Rupee has taken its toll on the car sales.

The major car assemblers, expected to announce their financial results shortly are set to witness substantial dent in their profitability in 2008.

The projections don’t bode well for the current year 2009 with the sales and profitability likely to plunge leading to major layoffs in this sector.

According to sources in the auto sector, the depressed economic situation had already reduced the number of shifts in the assembling units due to contracting demand. A substantial number of workers have reportedly lost jobs and the vending industry is also bearing the brunt of this gloom and doom for the auto industry.

Analysts predict decline the earnings of all the car assemblers—listed on the stock market—during 2008. Ayub Ansari, analyst at Investcap Research forecast that Pak Suzuki Motor Company (PSMC) is expected to post 119 percent decline in profitability in 2008 due to falling demand of the cars as well as increased cost of production on the back of rupee depreciation and expensive raw materials.

Honda Atlas Car Ltd. (HCAR) is expected to record loss after tax (LAT) of Rs 207 million in nine months of current year against the loss of just Rs 1 million in the same period of previous year.

Similarly, Indus Company is likely to post only Rs 8 million profit in first half of current fiscal as compared with Rs 1.361 billion it earned in the same period of previous year, Ansari said.

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

Analysts citing various reasons for this downfall in the sector also pointed out that credit crunch also contributed in the depressed demand for cars, which otherwise was the major factor in the strong demand during the previous years.

The massive rupee devaluation also offset the positive impact of plunge in the steel prices, which is the major cost constituent in the car assembling.

“The situation appears to remain same during the current year with the car sales declining by almost fifty percent in 2009,” analyst, Atif Zafar at JS Research felt. The sources in auto sector feared that if the ongoing downturn persisted for some more time, the biggest victims would be workers. On the other hand, the situation for imported cars looks no different from the local ones as its sales also depicted major decline in the recent items. This decline is attributed to the reduction in the monthly depreciation rate of imported cars from 2 to 1 percent to curtail the luxury spending aimed at reducing the import bill.

Though, the decreasing sales of the imported cars bodes well for the local assemblers, however, it is not going to alter the situation as imported cars have a meager 4 to 5 percent share in total car sales.

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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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