Used Cars; Honeymoon is over in Pakistan
Pakistan Times Business & Commerce Desk

ISLAMABAD: An effective check on import of used and reconditioned cars is in the offing through tariff barriers under the new Tariff Based System (TBS) from July this year.

Well-informed sources said that TBS is going to replace the existing deletion programme for the automobile industry in the forthcoming budget in the first week next month.

The new Tariff Based System will encourage value addition and localization. The Tariff Based System was agreed in consultation with all stakeholders that those parts and accessories, which were manufactured locally, would be subject to 50% import duty.

One of the areas of concern for the large manufacturing sector was the massive increase in financial charges on the back of growing interest rates in Pakistan.

During FY06, financial charges of the company increased by almost seven times to Rs 46m as against Rs 6m previously.

This massive hike in the finance cost is due to Rs 17.7m and Rs 27.6m respective mark-up paid on short term borrowings from commercial banks and customer advances. It is pertinent to mention here that there was no short term borrowing last year.

There was strong possibility of hike in duties on car imports. Both the proposals to be announced in the upcoming budget would have a positive impact on the automobile sector on the whole, auto industry sources observed.

It is however amazing to note that despite a flood gate opened following the reduction in duty on import of used cars, it failed to make any dent on the profitability and earnings of the local manufacturers.

That can be taken as a strong indicator about market appetite in auto sector in Pakistan.

For example, earnings of Honda Atlas Cars’, a leading auto player in Pakistan, for the year ended March 2006 posted massive upsurge. After tax profit for the company soared by 335% to Rs 705m compared to Rs 162m last year.

The exceptional growth in the bottom line primarily emanated on higher sales volume and increased margins.

Higher selling prices of Honda City cars and appreciation of the Pakistani Rupee against the Japanese Yen during the period also contributed positively. Sales revenue for FY06 surged by 55% to Rs 25,639 million while gross profit for the year stood at Rs 1,168 million, 312% hike as against Rs 283 million in FY2005.

Operating expenses of Honda Atlas increased by 43% to Rs 284 million due to upward adjustment in the entry-level salaries and additional advertising and promotional expenses on launch of New Honda City and Honda Accord.

On the other hand, 92% upsurge in the other operating income of the company boded favourably for the bottom line.

Honda Atlas has also declared 70% bonus shares for the year ended March 2006.

Honda Atlas Cars’ CKD sales stood at 31,401 units, portraying 57% increase over 20,004 units during the same period last year. Honda Civic’s sales stood at 13,417 units while 17,984 units of Honda City were sold during the year.

Sales revenue of the company soared by 55% to Rs 25,639 million in FY06 compared to Rs 16,587 million previously. It includes Rs 1,119 million from trading business. The company has also entered into the CBU business by launching Honda Accord. The new car is targeted to the high-end segment of the market.●