Considering large-scale manufacturing sectors, the auto sector is particularly one of the leading ones in terms of performance. The auto sector is prominent in terms of generating revenue, jobs and introducing new technology to the manufacturing sector. However, currently, there has been a decline in its performance considering the devaluation of the rupee over the past year.
The rapid rupee devaluation adversely affected the prices of automobiles. Automakers had to revise the prices several times from 2018 to 2019 to pass the effect of rupee devaluation on to the consumers. This led to declining sales as prices rose multiple times. Moreover, restrictions on non-filers have also deterred people from purchasing automobiles.
During 2018 to 2019, the auto sector generally faced sluggish growth apart from busses where the growth rate was around 17%. Manufacturers of busses predict a healthy demand for busses as the need to fix the urban transport system is under consideration in major cities. In the case of trucks, the market demand has been declining persistently mainly due to slowing down of economic activity in the country. Furthermore, many government projects have been halted resulting in dwindling demand for the trucks.
Passenger car sector recorded a growth of 2.4% which is meager considering the size of the sector. This was mainly due to higher registration rates for non-filers, recently imposed 10% Federal Excise Duty (FED) and ban on non-filers to purchase vehicles of certain engine capacity. The imposition of 10% FED on vehicles exceeding 1700cc has severely dented the sales of SUVs, cars, and jeeps in Pakistan. Similarly, Light Commercial Vehicles (LCVs) also experienced declining sales in Pakistan.
The poor economic condition and rapidly devaluating rupee also decreased sales figures of two and three-wheel vehicles. These vehicles are more price sensitive than passenger cars and trucks as they cater to the low-income group. Even a slight change in price can decrease demand dramatically. Due to their affordable nature, two and three-wheel vehicles hold great potential for growth in the future. Agricultural vehicles like tractors were also hit adversely from 2018 to 2019 mainly due to a decrease in agricultural production and the rise in prices of agricultural inputs.
Following is a year-on-year comparison of the automobile sector. Comparing the installed capacity with the actual production shows that the sector is underperforming.
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“Passenger car sector recorded a growth
of 2.4% which is meager considering the size of the sector. This was
mainly due to higher registration rates for non-filers, recently imposed
10% Federal Excise Duty (FED) and ban on non-filers to purchase
vehicles of certain engine capacity. The imposition of 10% FED on
vehicles exceeding 1700cc has severely dented the sales of SUVs, cars,
and jeeps in Pakistan. Similarly, Light Commercial Vehicles (LCVs) also
experienced declining sales in Pakistan.”
No. Sales have declined because genuine tax paying consumers do not see value in purchasing a car any more. Further, tax thieves must be prohibited from purchasing cars.
The cost-benefit analysis fails miserably for locally assembled cars. Car prices keep going up while quality keeps going down, delivery times keep increasing to 6-8 months when there is demand, purchaser has to pay price at time of delivery which is ludicrous when delivery time can be 6-10 months later and cost of ownership can change overnight due to incessant assembler price increases, government taxes and inconsistent policies, etc.