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Pakistan Autos Report Q3 2011
Business Monitor International, May 2011, Pages: 52
During the first eight months of FY10/11 (July to February), 146,271 vehicles were produced in Pakistan, representing an increase of 9.2% y-o-y on the 133,918 units produced over the same period of FY09/10, according to figures from the Pakistan Automotive Manufacturers Association (PAMA). This is made up of 85,924 units for passenger car production, 1,807 units truck production, 308 units bus production, 580 units jeep production, 12,000 units pick-up production and 45,652 units farm tractor production. Sales largely mirror production in Pakistan’s auto market: the first eight months of FY10/11 saw a total of 143,785 new vehicles sold in the country, an increase of 7.1% y-o-y.
The continued moderate gains in sales and production during the first eight months of FY2010/11 are largely in line with the forecasts for the full fiscal year. Replicating the eight-month data across 12 months, total vehicle production would amount to 219,407 units, while total vehicle sales would register 215,678 units. This compares to the established forecast for the full fiscal year of just over 221,500 and just over 224,000 for production and sales respectively. These forecasts are therefore left unchanged.
However, these forecasts for FY10/11 aggregate sales and production are still considerably below the high watermark reached for both variables in FY07/08. Indeed, although FY10/11 and FY09/10 have seen reasonably strong growth in y-o-y terms for both sales and production volumes, the industry is still recovering from a disastrous year in FY08/09, which was blighted by the global economic downturn and severe internal political instability.
The long-term outlook for car sales and production in Pakistan is reasonably good, given that the country is developing from a low economic base and car ownership levels are still restricted to a very small (but expanding) minority of the population. However, the medium-term outlook – over the next year, at least – is constrained by anaemic consumer demand, resulting from recent interest rate hikes by the State Bank of Pakistan, which has made it more expensive for consumers to borrow money in order to finance the part purchase of new cars.
Risks
The key downside risks to the forecasts are a possible renewed global economic downturn and fresh political instability in Pakistan. Over the shorter term, there is also a risk that the disruption to high-tech component production caused by Japan’s March 2011 tsunami could constrain vehicle production in Pakistan. As of mid-April 2011, some affected plants in Japan had restarted production lines, but a spokesperson for Indus Motor Company, which depends heavily on supplies from this source, acknowledged that ‘they are facing challenges in resuming production to pre-earthquake efficiency level.’
The main upside risk is a faster-than-expected recovery in local economic growth. The macro team currently forecasts a weak overall trajectory for GDP growth in Pakistan during calendar year 2011, but if this is proved to be overly bearish, then sales of new vehicles in FY2011/12 should rise more quickly than currently anticipated, owing to higher disposable incomes among the growing middle class.
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