(MENAFN- Khaleej Times) Strong auto demand is projected to push car production still higher, as thousands of Pakistanis wheel through the cities and the country-side in bright new, shinning cars.
The demand has been fuelled, among other improving economic indicators, by lowest interest rates in history, and rising personal incomes. The interest rates has been brought down to 5.75 per cent, over the last three years as the government was hard pressed to provide more and more bank cash to credit-starved industry and various economic sectors. As a result this policy, the large-scale manufacturing (LMS) doubled to 5.6 per cent, according to Pakistan Bureau of Statistics.
Auto assembly and manufacturing growth in this overall LSM rise was a big 11.22 per cent, followed by iron and steel and food products. What is the production record for the last few years, and what are the prospects for enlarging auto exports? The annual auto production was around 50,000 units until fiscal year 2012. It rose five times to 250,000 units in fiscal year 2014. The output target for fiscal year 2025 is 350,000 cars.
But a number of auto industry watchers, expect a much higher growth. They base their higher outlook as domestic demand is rising with personal income going up, and new models, with increasing conveniences, are pushing the market up. At the same time, the demand for commercial vehicles is going up, and exports are moving on the fast track. It leads the sector watcher to forecast the output to go up to 500,000 units by fiscal year 2025.
This bounty will be shared by the existing assemblers-producers including Toyota, Honda, and Suzuki, as will as the four new and incoming companies like KIA of South Korea, Faw of China, Renault of France and Volkswagon of Germany.
"The industry is now moving on the fast track as the new Auto Development Policy (ADP), fiscal year-2016-21 provides several facilities, the amount of the available financing has gone up, and performance of the country's overall economy is outstanding," says Ali Asghar Jamali, CEO of Toyota's Indus Motors Company.
"Large bank credit availability for auto loans is also described by a senior banker as 'the romance between the hardnosed bakers and car companies'."
Besides other factors like rising personal income, the demand for low-interest bank credit and car companies operating new taxi service like Uber and Careem, which are helping buy cars to use them as taxis." Such internet-based taxi services in major cities like Karachi, Lahore and Islamabad, are providing a neat and quick service to people, rather than riding ugly and broken down taxis and their messy, quarrelling drivers.
The bankers are happy to extend loans to this new breed of taxi drivers as they form a big, new category of borrowers who buy their credit-financed cars and regularly repay the monthly installments. The banks are happy as they receive their invested money regularly. They also receive handsome return on their investment in cars.
Until recently, the chief borrower of the bank credit was the government itself which provided a lower interest rate, but guaranteed the return of the bank credit.
"Things are now changing as banks are happy over the security and quick and good return on their investment in cars," a senior official of the State Bank of Pakistan (SBP) the central bank, told the Khaleej Times.
SBP reports that auto loans from all banks, during July-September fiscal year 2017 surprisingly doubled to Rs11.5 billion from just Rs5.8 billion in the like period of fiscal year 2016. "What we now see is just a continuity of the big increase, as the amount rose to Rs70 billion in full year fiscal year 2017, up from Rs44 billion recorded in the auto loans in fiscal year 2016," the spokesman said.
This is good news for the bankers who were fearing a fall in their profits because the low-interest rate policy which is continuing for months. The interest rate has been maintained at 5.75 per cent for months. The is kept low to boost cash starved industry and exports.
"The overall outlook for the auto industry, now and for several years ahead is bright," a spokesman of auto industry - Pakistan Auto Mobile Association (PAMA), said.
What is the size and the output of Pakistani auto sector? Pakistan Auto Manufacturers Association reports state that the total output of cars, jeeps, commercial vehicles and tractors rose 37 per cent to 78,625 in July-September quarter of fiscal year 2018 from 57,496 in the like quarter of fiscal year 2017.
The production of passenger cars and jeeps rose 29 per cent to 53,503 in July-September quarter of fiscal year 2018,up from 41,550 units in the like quarter of fiscal year 2017. The production of 1300 CC and above cars and Jeeps rose 12 per cent from 21,760 to 24,343 units.
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.
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