automobile pakistan

8/7/2019 automobile pakistan

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INDUSTRY PRESENTATION

AUTOMOBILE SECTOR OF PAKISTAN


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FEW IMPORTANT TERMS.

CBU: (Completely Built Unit) This means thatthe wholevehicle has been assembled in someother countryandthenimportedtothe country.

CKD: (Completely Knocked Down) Theparts ofsuch vehicles

are imported butthe vehicle is assembled in the country.

SKD: (Small Knocked Down) Theparts ofsuch vehicles areimportedandaportion ofthe vehicle is assembled in thecountry. i.e Some sophisticated components are notassembled within the country


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Total investmentofRs.129 billion(Cars, SUVs, Motorcycles,

Tractors)

Directemployment in the sector is over192,000

Contributes morethan $3.6 billion totheeconomy

Import substitution resulting in annualforeign exchange

savings ofover $ 1 billion

Industry is the secondlargetaxpayer in terms ofcustomduty ,

sales taxand WH tax

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Source: Engineering Development Board

Industry Snapshot


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SEGMENTS OF PAKISTAN AUTO INDUSTRY

Cars and LightCommercial Vehicles (LCVs)

Twoand Three Wheelers

Tractors

Trucks and Buses

Vendor Industry


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Operational Environment

Industryoperates underfranchiseand

technical collaboration agreement with:

Japan Europe

Korea

China

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Production Process

Completely Knock Down Units (CKDs)are imported

mostlyfrom Japan & Korea

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Combined with locally manufactured parts

The vehicles are mounted on assembly line to add tires,

seats and other accessories

Various Quality tests are performed


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Regional Density/Concentration

765

641

543

426

31 25 23 21 12 10 10

0

100

200

300

400

500

600

700

800

USA

Malaysi

a

Japan

UK Philipp

in

Srilank

a

IranIndones

ia

India

China

Pakista

n

Cars per 1000 person


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Auto DataAuto Data

Source-PAMA.


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Auto Sales figures:an unimpressive start

to

FY09


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The bonanzaoflocal carmanufacturers has cometo

a halt with local car sales plunging by51per cent in

thefirst quarteroffinancialyear2008-2009.

According torecent numbers released by Pakistan

Automotive Manufacturers Association (PAMA), car

sales forthemonth ofSeptember were down 29 per

cent at 7,889 units against 11,072 units soldduring

the samemonth lastyear.


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Reasons: Declining real incomeof

consumers.

Slowdown in carfinancing

dueto high mark-uprates.

The carfinancing became

moreexpansivedueto

increaseof200bps in

discountrate in FY08.

Price hikeduetopass-on

impactofhigher input cost.


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Capacityexpansion

Capacityexpansion underprogress

ImportofReconditionedCars

Govt. Policydiscouraging imports, lack ofspareparts, quality issues Steel Prices

Pakistan Steel has increasedtheprices ofits various products twice

in Feb 08from Rs.7,0000 to8,0000 pertonne , which the steel

dealers fearmayfurther increaseprices ofautomobiles

Exchange Rates Minor variations in Rupee-yen parity haveamarginaleffect

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Interest Rates

Expansionarymonetarypolicypursued bythe SBP till2004and banks inclination

towards consumerfinancing gave great impetus towards market competition and

innovativeproducts for consumerandauto-financing toluretheir clients

14

0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005 2006 2007

0%

5%

10%

15%

20%

Auto Loans (PRsmn) Interest rates


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Budget FY 09

Federal Excise duty of 5% has been imposed on import as well aslocally manufactured cars with engine capacity above 850cc.

Fixed duty on all imported used cars/jeeps increased by 10%.


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Duty rate on import of cars/jeeps above 1800cc has been increased

to 100% from 90% earlier.

Rate of General Sales Tax (GST) on car purchase has been proposedto increase from 15% to 16%.

A withholding tax (WHT) of 2.5% on purchase of locally

manufactured motor car or jeep is proposed to be collected by a

motor vehicle registration authority at fixed rates depending on theengine capacity.


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MARKET SHARE

Engine Capacity Preference

0

50,000

100,000

150,000

200,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08*

1300-1600cc (2000cc D iesel) 1000cc 800cc


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800 cc Category

Pie Share: 39%

27%

54%

19%

Bolan Mehran Cuore

Market Shares ofCARS


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1000 cc Category

Pie Share: 30%

56%

39%

5%

Cultus Alto Santro


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LuxuryCars 1300 cc+

Pie Share: 31%

17%

11%

6%

66%

Corolla City Civic Liana


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MAJOR PLAYERS


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PSMC: Financial Performance HY08

Pak Suzuki Motors (PSMC) is the countrys largestautomanufacturer

with market shareof60%.

During HY08, theCompanydeclared Rs599mprofitaftertax with

earning per shareofRs7.28depicting adeclineof70.2%.

Sales revenueoftheCompanydeclined10.4% to Rs25.3b in HY08

from Rs28.2bn lastyearmainlyduetolower sales volume.

Despitethreetimes increase in carprices in therangeofRs5,000 toRs30,000 bythe companyduring last sixmonths, gross margins

plungedto3.9% in HY'08as against12.7% in HY07.


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The Company has a capacity to assemble 150k units perannum.

The plant is located nearBin Qasim (Karachi).


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INDUS MOTORS

To be updated !!!


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Atlas HondaCars (HCAR)declared Rs36mprofitaftertax.

With earning per shareofRe0.25for1Q09as comparedto Rs20m

profitaftertax with earnings.per shareofRe0.14

in thecorresponding quarterlastyear.

Reflecting a significant growth of75.8%, despitedoubledigitdecline

in sales volume,

Mainlyduetolowerfinancial charges andmorethan double increase

in other income. Theadministrativeand selling expenses however

remained consistent.

HondaCars: Financial Performance(1Q09).


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In July, Honda Cars has launched new model of Honda Accord

and CRV in 2400cc categories.


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DEWAN FAROOQMOTORS

To be updated !!!


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SWOT ANALYSIS

Strengths

Country-wide 3S (Sales, service, spare parts) and distribution network

Presence ofconsumer base

Strong chain ofvendor industry and assembler

Consumer Financing- Auto Loans Joint venture with international brands that help in maintaining the

technologyas wellas the qualityoftheproduct. Major internationalnames ventured with Pakistani firms are:

Japan

USA

Korea

Do notrequire highly skilledlabor in vendor industry


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No close substitute

Manufacturers and Vendors employabout255,000 workers.

Theseareexclusiveoftherelatedrepair shops working inalmostaroundthe country in large number)

Wellestablished infrastructure(as comparedtolast12years)


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WEAKNESS

Capital intensive. This is the reason which restricts many localinvestors.

High prices and not very high quality vehicles.

Time in assembling. Customers have to wait up to 11 months indelivery of many cars.

Lack of technological advancement in the indigenization (models) of

the product. Many of the local models are said to be OBSELETE inEurope, America and Japan.


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High costofproduction anddoing business

Power shortages

Underdeveloped vendor industry

Lack ofresearch anddevelopment

Lack oftraining in vendor industry


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OEM (Original Equipment Manufacturing), allows Pakistani exportersto export spare parts to USA, Europe and Japan. Fortunately, the

spare parts of Pakistan (both in manufacturing and replacement)

were welcomed in the international market.

OPPORTUNITIES

AIDP, developed by Engineering Development Board is expected to

provide assemblers a structure to base their expansion plans so as to cater atarget of 500,000 vehicles per annum by 2011-2012

One major factor that can not be neglected is the introduction ofCNG.

This created a boom in the demand of the automobiles through out the

country within few months of its introduction. More CNG stations areneeded to be installed

Increasing standard of living and purchasing power


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Expectedrise in the interest Exchangeraterisk associated with Japanese Yen and

Korean Won

Rise in Steelprices

Toomanyregulatoryauthorities

Smuggling and under invoicing

Importofreconditioned cars

New Entrants - Chinese Auto companies (e.g. DONG FENG)

Strict Emission controlpolicy:

-- Euro II compliance , Useofcatalytic converter

No sign of any specialized training institute of program. No R&D

Program.

THREATS


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EDB (Engineering Development Board)

MinistryofIndustries, Production & Special Initiatives

TariffGroup

Policy Development Group

Sector Development Group

Business Development Group

PACO (Pakistan AutomobileCorporation)

Established in 1973 under Federal MinistryofProduction

Nationalized units undertook localmanufacturing facilities

PAAPAM (Pakistan Association ofAutomotive Parts Accessories Manufacturers)

PAMA (Pakistan Automotive Manufacturers Association)

Topromoteprogressivemanufactureofautomotive vehicles (cars, commercial

vehicles, motorcycles, farmtractors) in the country.


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TBS has replacedthe Deletion Programforthelocal

automobile industryfromfiscalyear2006-07

Locallymanufactured Parts subjecttoa highercustoms dutyof50%. Whileparts thatare not

manufacturedlocallyrather importedas CKD would be

subjectedto35% customduty

Manufacturers arefreeto source its components from

any where in the world


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To create an export-oriented auto sector

The government plan is to increase Production turnover to Rs. 600 bn from the current level of

Rs. 210 Bln Annual export of parts to $ 650 mn from the current level of

$ 35 mn, by 2011

Contribution in GDP to reach 5.6%

And the share in manufacturing sector to 25% by 2011

The local assemblers are given a target production levelof 0.5 million 4-wheelers and 1 million motorbikes by2010-11


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Reduction in Cap for import of used cars reduced to

3yrs from 5yrs

CVT has been added with CD

2.5% WHT on locally manufactured automobile units

New entrants are allowed to import 100% CKD

components at the 35 % CD rates

Duty and tax free import of 3 to 25 cars by the New

Entrants who would be making an investment of

$10Ml to $125 Ml


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Companies that are producing more than 500K units

of cars in other countries are eligible to enter the

market

The relaxed tariff structure for the new entrants

could severely impact local vendors


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Phase-wise Tariff Reduction


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KEY ISSUES

Road Side Dealers:

Luxury cars take upto sixmonths to bedeliveredafter booking

Road sidedealers start booking new cars in largenumbers when a car is launched.

They chargeextraown over cars by creatingartificial shortages and guaranteeing quickdelivery in return fortheextrapremiumtheycharge

Thus, in a way cars are black marketed


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Car Financing Defaults

Fromearly2000 tillmid2007, Car Financing boostedthe saleofautomobiles in Pakistan with arecord growth of29.% in the industryin 2006

However, continuous defaulton partofbuyers eventuallyledtheState Bank toputa holdon Car Financing by imposing restrictions onit in the2nd halfof2007. Interest Rate was increasedfrom16% to22%

As aresult, car sales declined by7% during July-Dec 2007

Defaulted cars areresoldon a value comparativelyless than marketvalueaffecting thelong termresale valueofthe car becausealarge

numberofcars weredefaulted Major issues aroused when people with an affordrangeofsay800cc

cars wereallowedtopurchase1300cc cars on back offinancing


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Barriers for New Entrants

Difficultto capture Pakistani customer who has moreorless complete knowledgeabouttheexisting firms butknows littleabout international companies:

CHEVERLOT is not gaining popularity besides having string

global name

Manufacturers dontallow competitors tooperatefairly:

ADAMMOTORS CAR DIVISION which was denied supplyofautoparts by certain local vendors on terms ofotherplayers in themarket


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Quality vs Quantity

Most companies arefocusing on sales volumes as thedemand is high:

Suzuki

Somearefocusing quality standards morethan the volume: Toyota

Few focus on localizedproducts meeting differentiated natureofneeds:

Shehzore Truck

Exports of Pakistani Cars are almost nil as the total

exports of Pakistani assembled CBUs was $0.7 million in

2007. So a great effort is needed especially in terms of

R&D by local companies to make cars that can competeany international premium brand


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Fuel Pricing, Alternatives &

Availability

Upsurges in fuelprices are harmfulforthe industry

As thefuelprices increase, customer inclination towardssmallas wellas fuelefficient cars increase shortening the

marketforluxurious fuel consuming cars

CNG kit installed in luxurious cars, thatare not

recommendedforCNG use, hampers performance


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Car Thefts & Accidents

Car Thefts have surgedtoa greatextent in recentyears and is

proving to beamenacefor carowners.

Toomuch expensive cars (imports) were usuallyavoided bycustomers despiteofhaving purchasing power becauseof

theft concerns. Moreover, accidents are increasing

unfortunately which alsoraise concerns for carowners


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Low demand, high cost150,000 losejob in troubled

auto industry

Currentturmoil in theautomobile industry has claimedjobs ofaround

150,000 workers, mostlyfromauto-vending industries which are now

operating ataround40 per centoftheir installed capacity.

A surveyoftheauto-vending sectorreveals mostofthe vendors increased

their capacity substantially in the wakeofsustained growth ofover20 per

cent in automobileproduction during 2001-2006.

This capacity is now lying idleas insteadofregistering some growth theautomobileproduction is on thedecline.


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Demandforautomobiles starteddeclining with increase in mark-uprates

on carfinance while vendors are now forcedto servicetheirloans on

current interestrates as they had borrowedmoneyatfloating rates.

Atthe sametime, the vendors allegethedeletion policyofthegovernment is in doldrums. Even in vehicles with adeletion levelof70 per

cent, theypointout, the costofimported components is much higher

than thepricepaidto vendors forlocal components. In fact, for70 per

centlocalparts theauto-vendors getonly30 per centofthetotal costof

vehicleparts whiletheforeign exchange componentfor30 per cent

importedparts comprises 70 per centofthetotal cost.


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CONCLUSION

There are no chances of resumption of a growth cycle in automobile in

the next two years.

Cost of production has increased enormously due to high steel and

energy prices and auto assemblers are not prepared to increase the ratesof parts corresponding to the rise in the cost of production.

The automobile industry in Pakistan is currently passing through a

difficult time. Declining auto demand and rising input cost are the real

challenges for the industry. Going forward, we expect that profitabilityof the auto sector remains depressed in the coming quarters as well.


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automobile pakistan