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Pakistani car assemblers still unhappy over falling used cars imports

The assemblers of cars are still unsatisfied over sharp drop in import of used cars (from 660cc to 3,000cc) vehicles saying that the import continues despite government’s decision of restricting the arrival through various measures.

According to Pakistan Bureau of Statistics (PBS), import of cars plunged by 44 per cent in 2013-2014 to $177 million as compared to $313.5 million in 2012-2013. But these figures do not impress the local car industry.

CEO of Indus Motor Company (IMC) Mr. Parvez Ghias gave a press statement with reference to IMC’s results of 2013 14 that the industry was marred by various factors such as sluggish economic growth and the inventory overhang of used cars.

The Government’s decision to restrict the age limit of imported used vehicles to three years lent some respite to the auto industry however, despite the restriction, over 30,000 used vehicles (all types) still entered the market during the year as traders took advantage of the 50 per cent duty and sales tax concession provided for hybrid vehicles and targeted hybrid imports, IMC press release said.

IMC reported a profit after tax of Rs 3.87 billion in 2013-14, up 15 per cent over the corresponding period last year. The sales revenue was Rs 57 billion, down 11 per cent compared to Rs 64 billion in 2012-13.

IMC’s sales of Toyota and Daihatsu brand (CKD and CBU) vehicles in 2013-14 were down 11 per cent to 34,470 units, compared to 38,517 units sold in the prior year. The decline in sales is attributable to the run-out of the 10thGeneration Corolla and re-tooling of the assembly lines requiring plant closures. Additionally, the imposition of 10 per cent federal excise duty (FED) on the Toyota Fortuner adversely impacted the company’s volumetric sales for the first SUV to be manufactured locally.

Based on the financial results of year ended June 30, 2014, the IMC board announced a final cash dividend of Rs 23.50 per share, in addition to an earlier interim dividend of Rs 6 per share, bringing the cumulative dividend paid for the fiscal year at Rs 29.50 per share.

This shows that the main reason of sales decline has nothing to do with import of used cars. The industry should have capitalized falling import of used cars and industry’s sales should have risen by 40-50 per cent. However, it did not happen as car buyers had much better options available in old stocks of used cars in the markets at the price of costly locally assembled cars. Many consumers still consider before purchasing costly locally assembled cars and many feel satisfied by running fully loaded imported used cars.

Sales of locally manufactured cars remained flat at 118,102 units in 2013-14, compared to 118,830 units in 2012-13.

Only sales of Honda City, in 1,300cc and above, excelled by 22 per cent to 13,741 units, compared to 11,285 units in 2012-13.

Toyota Corolla sales, however, dipped to 29,087 from 32,608 units followed by Honda Civic to 9,933 from 9,950 units; Suzuki Swift to 5,128 from 6,096 units and Suzuki Liana to 161 from 164 units.

Pak Suzuki Motor Company Limited (PSMCL) has not officially announced discontinuation of Suzuki Liana but vendors said that the sedan production has already come to a halt. This is evident from its production, 72 units each in October and December 2013.

Pakistan Automotive Manufacturers Association (Pama) figures showed that sales of Suzuki Cultus improved by 13pc to 14,682 from 13,308 units in 2012-13. PSMCL’s WagonR production and sales stood at 2,208 and 1,621 units, respectively, during April to June 2013-14.

Hyundai Santro production resumed in January 2014 with 82 units after a long gap but the company ended its production in February 2014 with 128 units. From January to June 2014, production and sales of Santro were registered at 210 and 152 units respectively.

In 800cc vehicles, Suzuki Mehran’s sale plunged by nine per cent to 29,509 units, compared to 32,407 units. However, Bolan sales grew by 8.8pc to 14,088 units from 12,941 units.

Analysts however attributed stagnant volumes to higher imported car inventory and imposition of higher taxes.

Weak sales of Toyota Coro¬lla in the last three months were registered, as people deferred their buying till the availability of new model.

According to figures of All Pakistan Motor Dealers Association (APMDA) import of used cars dropped sharply year-on-year in 2013-14, but local assemblers who had been lobbying against the arrival of second-hand vehicles have failed to take advantage of the situation as their sales remained subdued.

Data shows that import of used vehicles (from 660cc to above 3,000cc including 4×4 jeeps) plunged to 22,185 units in 2013-2014 compared to 44,767 in 2012-13.

The government netted around Rs9 billion in customs duty collection in 2013-14 from used vehicle import compared to Rs18bn in 2012-13. Used cars arrived under transfer of residence, personal baggage and gift schemes.

Around 16,193 units of up to 1,000cc cars were imported compared to 26,525 units in 2012-13. The customs duty collections consequently fell to Rs 3.46bn from Rs4.2bn. From 1,001-1,300cc, only 37 cars were imported as compared to 2,193 units.

Imports of 1,301 to 1,500cc cars stood at 2,646 units compared to 12,255. Only two units were arrived in category of 1,501cc to 1,600cc in 2013-14 compared to 48 units in 2012-13.

Total imports in 1,601-1,800cc stood at 2,364 units compared to 2,427 units, while in 1,801cc- 3,000cc segment, only 35 units came from abroad compared to 61.

Only 18 units of above 3,000cc vehicles were imported during 2013-14. The number was 82 in 2012-13. In jeeps (4×4), around 890 units came compared to 1,176.

APMDA Chairman H.M. Shahzad said local car assemblers failed to raise their sales amid persistent decline in imports of used cars. Year-on-year sales of locally produced cars remained flat in 2013-14.

Cut in age limit of used cars to three from five years coupled with reduction in depreciation to two years’ limit has depressed the import of used cars and government’s revenue collection, he said.

In budget 2014-15, the government increased the import duties on used cars. Besides, changes in withholding tax would also affect the retail price of used cars. “People may now find it harder to afford a car,” said Shahzad.

In a letter to Finance Minister Ishaq Dar, APMDA chairman said the government must realise that in the absence of any decent public transport system, car is a necessity and not a luxury.

“Pakistanis have become the highest taxed people in the world as everything is taxed directly or indirectly,” he said.

Pak Suzuki Motors (PSMC) announced 1H2014 profits of Rs1.03bn (EPS Rs12.6) which is down 10.5 per cent against Rs1.16bn (EPS Rs14.1) in the same period last year.

During 1H2014, revenues increased to Rs29.1bn from Rs26.9bn in 1H2013, up 8.3 per cent YoY. However, volumetric sales increased to 42,116 units, up 1.9 per cent, compared to 41,326 units in 1H2013. Gross margins improved by 177bps to 7.6 per cent primarily due to lesser increase in cost of sales, on account of Pak Rupee appreciation, compared to increase in sales revenues.

Other income declined massively by 47 per cent to Rs296mn compared to Rs564mn in 1H2013. Distribution cost increased by 70.5 per cent to Rs410mn while administrative cost increased by 22 per cent to Rs537mn in 1H2014. Furthermore, total tax of the company also surged massively by 175 per cent to Rs424mn compared to Rs154mn because company shifted from turnover tax last year to corporate tax now.

During the 2Q2014, sales of the company increased by 12.5 per cent QoQ to Rs15.4bn while gross profits increased to Rs1.3bn, up 29.2 per cent. As a result, company reported profits of Rs592mn (EPS Rs7.2) compared to Rs443mn (EPS Rs5.4) in 1Q2014.

Honda Atlas Cars (HCAR) posted 1QFY15 EPS of Rs4.41 versus EPS of Rs2.3 compared to same quarter last year, up 93 per cent YoY.

Higher earnings are primarily due to significant rise in gross margin.

That said, the company during 1Q (Apr-Jun 2014) posted gross margin of impressive 12.7 per cent versus 7.5 per cent last year (Apr-Jun 2013). Sharp appreciation in Pak rupee versus the Japanese Yen reduced production cost which improved company’s gross margin.

Company’s revenue grew by 3.4 per cent YoY to Rs11.3bnn primarily due to 6 per cent rise in volumetric sales.

On QoQ basis, HCAR’s EPS remained almost flat. However, it is to be noted that the company’s corporate tax remained higher in 1QFY15 versus 4QFY14.

This exclusive article on Pakistan Auto Sector, published in monthly automark magazine’s september-2014 edition.

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