An Insight into Automobile Industry’s Performance

Engineering Post Report 

Except for sluggishness in some areas in cases of Buses and Two/Three Wheelers, there has been robust  growth in all automobile sectors during the period of July 2021 -March 2022.

The higher growth  effectively manifested  clearing up of the pent up demand of COVID-19 period, otherwise  negativity or stagnation  in growth was  persisting for the last about five years.

During the year under report here, there  had been persistent  supply chain  interruptions due to Chip shortages, skyrocketing freight costs, unrelenting  rupee weakening, galloping  inflation and auto financing  restriction on high-end vehicles  to reduce the import bill of the country. Further, the earlier reduced taxes at the time of Federal Budget 2021-22  were recovered  in the subsequent mini-budget thus frustrating  the possible impetus to growth .

New Auto Industry  Development and Export Policy  2021-26 has since been announced. Besides Made in Pakistan notion, in the new auto policy, inter-alia, Meri Gari Scheme (My Vehicle Scheme), New Product Policy and setting up  of export targets have been introduced. All these measures are , according to the experts, are indeed quite encouraging  and it was expected  that these initiatives  would soon  see  the light of the day. However, in the forthcoming  outlook the demand  was feared to  weaken, as disposable  incomes would decline  due to higher inflation, and higher exchange rates and increasing interest rates, amongst other factors.

The august performance   observed  in the automobile sector  during the period of July-March FY2022 was due to the latent demand for motor vehicles that showed  about 50 per  cent plus growth. Also in the in the heavy commercial vehicles,  there was substantial growth  in the trucks  as the medium size trucks, around  5 tons,  unexpectedly  became popular due to  their affordability and expansion of e-commerce. Additionally, number of small trucks  signed up at a reduced rate of 5 per cent  in response to Kamyab Jawan Scheme. More market expansion was expected   owing to  inbuilt confidence  by the current investors as well as the new entrants in bringing locally produced  hybrid vehicles. Therefore, all projections casted a positive outlook  for the industry.

In case of passenger cars, the production  and sales were up by  57 per cent and 54 per cent  with 166768 and 172612 units respectively. In this regard, higher growth was observed  in up to 800cc and up to 1000cc segments registering  77 per cent  and 65 per cent  growth respectively. Growth in exceeding 1000cc segment was  35 per cent. For similar reasons, he production  and the sales  of light commercial vehicles (LCV) and SUVs registered  increase  by 44 per cent and 46 per cent respectively. in the SUV and  SUV Crossover segment two new products appeared from  Beijing Automotive  Industry, BAIC BJ40L and BAIC X25 with modest numbers  which were expected to grow in time.

Farm tractor sector  showed growth with production of and the sales up  by 13.5 per cent and 12 per cent respectively. This pleasant upward surge  was due to  overall growth  in the agriculture sector ensuring  better crop prices and consequently  more buying power of the farmers. However, these numbers were somehow not even  close to the highest numbers this industry had achieved in the past.

The two/three wheelers sector showed  modest fall  in production  and the sales by  3.5 per cent and 4.1 per cent respectively. This fall was due to intra-industry  production losses by some units, while other units had showed their growth.  Two/three wheelers offer most economical  transport  alternate  for the lower income  group, however,  at the same time, it was extremely prices sensitive also. 

Massive exchange rate losses  kicked off inflationary conditions resulting in inevitable price increase. Still, this sector offered  most preferred means of transport of transport  and the best alternative  in the absence of public transport  in the cities and thus held a dependable  and continued  potential for growth  in the coming years, the  experts opined.

The auto  sector constituted   about15 per cent of Large Scale Manufacturing (LSM) hence represented  significant  industrial output  of the country. According to the Pakistan Bureau of Statistics (PB), automobile  recorded  54.1 per cent upsurge during the period under report.  Despite robust growth during 9 months of FY2022, the highest numbers ,to a great  extent,  fell short of installed capacities. Also these numbers were far too meagre against  production projections made in the 4espective  auto policies. Long term policies attracting  new player did indeed  expanded the market  with new makes and models but  volumes  di not  go across  critical level that warranted  broad-based localization and import substitution .

Auto industry was heavily invested during last four decades to establish  engineering base in the country and had undertaken  innumerable  transfer technology agreements. All these hold a bright future for so far the best performing  auto sector among the large-scale manufacturing.

Given the continued government support and removal of irritants would  soon going to  bear fruit in the wake of industrial expansion as many new investors have already gone into commercial production while the existing players  have already made  huge investments and lot  more were in waiting. These investments  by the new and the existing players was testimony  to confidence in our market, at home and abroad. Given the macroeconomic stability in the country and the extraneous factor not to go out of hand, particularly in terms of  unwanted tariffs and untoward  policies, the latest  demand would hopefully burst out  and expansion of the industry volumes would surely and certainly take place, the experts opined.