High fuel cost unlikely to make a dent in auto demand

KARACHI: Despite all-time high fuel prices, bookings and retails of cars are seen strong as people are unlikely to change their preferred mode of transport for the lack of an efficient mass transit system, but may switch to smaller categories, hinting at a mostly stable consumer morale in the short-term.

However, we might see a serious impact of this backbreaking petrol price hike on the sales of two-wheelers, especially, the cheap locally-made Chinese brands, currently the best option for low-income segments of society, as high-quality expensive Japanese models are out of their reach.

“In absence of reliable public transport, I don’t see car demand would even budge, no matter where the fuel cost goes,” said research analyst at AHL Research Arsalan Hanif. “People would always need to travel for work notwithstanding the price of petrol.”

“Increase in fuel prices will not directly impact car sales, because we do not have alternative options nor do we have a proper public transportation system,” Hanif added.

Wasil Zaman, a research analyst at JS Global, says the rise in petrol prices is unlikely to affect people’s plans to buy a car. “People may switch to close substitutes or less fuel consuming variants and reduce leisure drives to save on fuel cost,” Zaman said.

Haris Siddique, analyst at Foundation Securities, said that higher fuel cost wouldn't impact auto sales as the current volumetric growth was mainly driven by rural and corporate clientele.

“The consumer base perceives high fuel cost as a temporary phenomenon, whereas automobiles are considered to be a moving asset,” Siddique said.

“However, we can expect a shift within segments as consumers may move down from higher to lower ones, but overall demand is highly likely to remain intact,” the Foundation Securities analyst said.

HM Shahzad, Chairman All Pakistan Motor Dealers Association (APMDA), doesn’t see any short-term impact on the industry, arguing automakers have overbooked cars to be delivered over a period of up to nine months.

“I don’t expect car sales to come down anytime soon. Given hefty ‘on-money’ being charged by the car sellers on early delivery, we can easily say the demand is not going anywhere,” he said.

On-money is an illegal profit sellers charge from car buyers against fast-tracking the delivery of vehicle. Carmakers deny they have got anything to do with it, but reports suggest some of OEM’s (original equipment makers) authorised dealerships are a part of the game.

Sabir Sheikh, Chairman Association of Pakistan Motorcycle Assemblers (APMA), says fuel cost hike has forced a number of motorists to become bikers.

“Car owners are buying motorcycles to cushion he fuel price shock,” he said and claimed as a result the sales of Japanese motorcycle recorded a notable increase.

However, Sheikh said rising fuel, food, and overall inflation weighed on the demand for cheap Chinese bikes.

“We are seeing sales of Chinese motorcycles dropping and many bike makers were on the verge of shutting down their operations,” he said.