Karachi, August 11, 2022 (PPI-OT): Autos: Demand to contract over 50% MoM in Jul-22

Auto sales during Jul-22 are expected to decline by more than 50% on both YoY and MoM basis clocking in at 11.6k units. The drop is expected on the back of escalating car prices, rising interest rates and adverse measures taken by regulators. The MoM drop is compounded by aggressive pre-buying witnessed in Jun-22.

Autos demand is likely to remain under pressure during FY23 (expected to drop 25% YoY), while margins for auto assemblers are expected to remain stable in the near term supported by aggressive price hikes announced recently.

Continued cost pressures could however test pricing power and compress margins, while on the flip side, stable currency and decline in commodity prices could provide assemblers an opportunity to report better margins by retaining the respite on costs.

Volumes to dip after aggressive pre-buying last month

After witnessing strong demand throughout FY22 (277k units sold, up 54% YoY), auto sales during Jul-22 are expected to dip by more than half on a MoM basis clocking in at 11.6k units, down by 56% MoM.

The drop in sales comes on the back of escalating car prices taking its toll on purchasing power of consumers, rising interest rates and adverse measures taken by the regulators. Moreover, the industry witnessed aggressive pre-buying behaviour in Jun-22 as consumers anticipated price hikes and tax measures in the budget, magnifying the decline in sales as witnessed in Jan-22 and Apr-22 with sales declining 25% and 17% respectively (months following pre-buying in Dec-21 and Mar-22). INDU is set to witness the sharpest decline in sales dropping 62% MoM due the above-mentioned factors whereas PSMC/HCAR, despite some support from the launch of new models (Swift/City/Civic), are expected to follow suit with sales declining by 58%/36% MoM respectively.

Recovery in margins at the cost of demand

Demand for autos during FY23 is expected to remain under pressure, estimated to decline by 25% YoY, owing to various factors mentioned above. Margins on the other hand, are expected to remain stable in the coming quarters supported by aggressive price hikes announced recently as a result of PKR devaluation, rising freight rates and imposition of additional taxes. On the supply side, obstacles in the import of CKD kits continue to hamper production as auto makers, in Jul-22, were allowed (by the SBP) to import only 50% of their average imports of last 4 months which is expected to go up till 70% by Sep-22 in a bid to contain the country’s import bill.