Car-Makers To Resist Dampening Sales With New Models

Web Desk — The carmakers are finding ways to entice customers with updated models after a noticeable 30% drop in passenger car sales in January 2022 due to higher prices, rising interest rates, and pre-buying in December 2021 in anticipation of tax measures announced in the mini-budget.

One or more of the reasons that propelled the upward swing in 1HFY22 are expected to fade or change. It is anticipated that unfavourable macroeconomic conditions for the Auto industry, such as SBP’s restrictions on auto financing, which would reduce the term of auto finance from a maximum of 7 years to 5 years and increase the minimum down payment from 15% to 30%, along with increased interest rates from 7% to 9.75%, would slow growth in 2HFY22.

JS Global reported that Civic and Swift are expected to be launched in Feb/March 2022, which could dampen the mood.

Meanwhile, it is prudent to note that supply chain issues, such as the semiconductor chip shortage, have hampered the global auto industry. However, the report points out that local players have been less impacted, especially INDU, HCAR, and PSMC, since the companies were able to procure sufficient inventory to meet the demands.

The report indicated that the global chip shortage has had a more pronounced impact on the new players (KIA & Hyundai), resulting in the closure of bookings for Hyundai’s Tucson and KIA’s Picanto. Indu’s management predicts that the crisis will normalize by the end of CY22.

On the other hand, the high freight costs and delayed shipments are expected to persist for a longer time. Although automakers have passed on cost pressures, the full extent of demand destruction has yet to be realized.

According to reports, multiple dealerships have expressed concern about the decline in demand for auto financing as a result of the measures taken by the SBP, which is likely to result in lower sales volumes and longer delivery times for vehicles. To date, the impact has not been evident in the car financing numbers released by the central bank, it added.