KARACHI: Truck assemblers have just survived a dismal year only to find that the next one could yet be worse.

In the last fiscal year which ended on June 30, 2019, truck sales fell to less than half of what they had been in the previous year. But starting from July, the trend appears to be deepening.

There are five major truck assemblers in Pakistan, but two of them — Hinopak Motors Ltd (HML) and Ghandhara Industries Ltd (GIL) — dominate the market. Between them they accounted for 80 per cent of total truck sales last year.

At least one of them is now talking of scaling back production and putting off expansion plans. “We are putting every endeavour to survive in this trying time,” says Naushad Riaz, Vice-President for Production and Business Operations at HML. “We have taken steps like temporarily shelving our expansion projects last year involving Rs300 million to boost production capacity and to optimise available resources.”

Two years ago, total truck sales in Pakistan were 9,331, which fell to 5,828 in FY19. The bulk of the decline was absorbed by HML, which sold 1,808 trucks in FY19 compared to 3,874 units in FY18. This is more than a 50pc drop in one year.

The new fiscal year has fared no better. Last July HML sold 213 trucks, but this July they managed to sell out 101 units. Part of this is explained by a shrinking market due to contraction in construction activity and development projects, as well as shrinking business activity. But in significant measure, it also owes itself to the appearance of a new competitor in the field as GIL’s Isuzu brand has eaten up growing market share over the past few years.

Isuzu sales also fell sharply between FY18 and FY19, going from 3,878 to 2,801 units, a decline of 26pc. This is not as steep a fall as what other assemblers have seen in the same period, but a fall nonetheless. The current fiscal year might see this trend bottom out. In July 2018, GIL sold 261 trucks and 252 units this July.

Truck sales are often considered a barometer of economic activity. Unlike cars, demand for which comes in large number from households and individuals, trucks are almost entirely purchased by business enterprises. Rising demand for trucks can be construed to mean economic vibrancy since it demonstrates ability and willingness of business enterprises to invest in their transport capacity, as well as greater supply and availability of goods and material in the economy that needs transportation.

Sales of commercial vehicles shot up from FY14 and the boom continued for the next five years. Volumes increased by 3.5 times, crossed 10,000 units during FY18. But from July 2018 on wards, sales have been rapidly declining every month, Naushad said.

The first shock to this boom in sales was the sudden introduction of filer and non-filer conditions, according to him. According to a fair estimate, non-filers constituted 40pc of total sales. By the time, the industry was trying to get out of this impact, it faced another blow in the shape of rupee depreciation against the US dollar thus badly affecting the entire economy as well as input costs for assemblers.

GIL’s Isuzu brand has weathered the declining sales better than their competitors, but the future remains uncertain for them too. “We see FY20 as a struggling year and we hope that after consolidation phase, the next year will bring better business opportunities for the auto sector,” an official from the company, who did not wish to be named, tells Dawn.

Truck prices, he said, have risen due to rupee-dollar parity coupled with higher vendor costs and increase in import sales tax and custom duty on completely knocked down kits and weak economic activities.

He said almost all companies have reduced their production due to weak demand. “Our company has not fired any worker and staffer so far,” he added.

The brunt of the cost-cutting thus is being borne by the daily wage labour that the assemblers use. These are workers with no contractual protections, and when the axe of cost-cutting and production curbs hits, it hits them first.

Published in Dawn, September 1st, 2019