High interest rates and soaring automotive prices contribute to a significant decline in demand
In April 2023, Pakistan’s domestic car sales plummeted to a three-year low, attributed to a sharp fall in demand resulting from high interest rates and elevated automotive prices. According to analysts at Arif Habib Limited, automobile sales experienced a substantial decline of 52 percent MoM (month-on-month) and 80 percent YoY (year-on-year), reaching a monthly sales figure of 4.5K units, the lowest since the Covid-19 pandemic in April 2020.
The decline in sales can be primarily attributed to diminishing demand due to multiple factors, including steep increases in interest rates, escalating automobile prices, frequent plant shutdowns, rising petroleum prices, and reduced affordability for consumers. These challenges have collectively contributed to a significant contraction in the automotive market.
The decline in sales was particularly evident in the volumetric sales of Pakistan Suzuki Motors Company (PSMC) and Honda Cars (HCAR), which witnessed declines of 74 percent MoM and 75 percent MoM, respectively.
Additionally, the auto financing sector experienced a consecutive decline for nine months, with a 12.83 percent YoY decrease recorded in March 2023, amounting to Rs317 billion. It is noteworthy that auto financing, which previously accounted for 30 to 40 percent of total auto sales, has now dropped to zero.
Analysts further highlighted that the 1,300cc segment and above observed a decline of 46 percent MoM, with significant drops in sales of Civic and City models, both experiencing a 74 percent MoM decline.
Furthermore, the 1,000cc segment witnessed a massive decline of 71 percent MoM, driven by sharp decreases in sales of Swift, Cultus, and Wagon R models, with monthly sales declining by 83 percent, 63 percent, and 80 percent, respectively.
Sales in the below 1000cc segment also suffered a significant setback, declining by 70 percent MoM, with a total of 983 units sold in April 2023.
Amidst the overall decline in the automotive market, Indus Motors showed some improvement in volumetric sales, selling 1,948 units in April 2023, reflecting a 2 percent MoM increase compared to the previous month. Notably, sales of Fortuner and Hilux models experienced a 19 percent MoM surge, reaching 941 units.
Pakistan Suzuki Motors Company (PSMC) contributed the most to the decline in auto sales, with a massive 74 percent MoM decrease. The sale of Alto, a popular model, dropped from 2,542 units in March 2023 to 820 units in April 2023, marking a 68 percent MoM decline.
Honda Cars also witnessed a significant decline of 75 percent MoM, with BRV/HRV sales reaching a meager 48 units.
On a positive note, tractor sales showcased an 8 percent MoM increase in April 2023. Millat Tractors Limited (MTL) experienced a 55 percent MoM decline in sales, while Al-Ghazi Tractors Limited (AGTL) saw a remarkable 6.4x MoM increase.
As Pakistan’s domestic car sales hit a three-year low, industry stakeholders will closely monitor market conditions and seek measures to stimulate demand. Addressing the challenges posed by high interest rates, automotive prices, and consumer affordability will be critical to reviving the country’s automotive sector and bolstering economic growth.
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