Vehicle Sales Plunge by 36% in July 2024 Amid New Tax Measures and Pre-Buying Surge

Pakistan’s automobile sector experienced a steep decline in vehicle sales during July 2024, with a 36% drop in month-over-month (MoM) sales. This decline, largely anticipated by industry analysts, was primarily driven by pre-buying activities in June, as consumers rushed to purchase vehicles before the implementation of new tax measures introduced in the FY25 budget. Data released by the Pakistan Automotive Manufacturers Association (PAMA) revealed that a total of 8,589 units were sold in July, marking a significant decrease from the 13,284 units sold in June 2024. Despite the MoM decline, the industry saw a 60% year-over-year (YoY) increase, reflecting the recovery from the low base in 2023.

Impact of Tax Revisions on Sales

The primary factor behind the sharp decline in July vehicle sales was the increase in withholding tax (WHT) on vehicles, as outlined in the FY25 budget. This led to a surge in sales in June as buyers sought to avoid the higher tax rates. As a result, the demand naturally tapered off in July, leading to the substantial drop in sales figures.

Hyundai Nishat Motor recorded the most significant MoM decline, with sales plummeting by 50% to 529 units. However, the company still managed to achieve a 7% YoY growth, showcasing resilience despite the challenging market conditions. Toyota Indus Motor Company (INDU) also faced a considerable MoM decline, with sales falling by 44% to 1,664 units. Honda Atlas Cars (HCAR) reported a 15% MoM decline, selling 931 units, while Sazgar Engineering (SAZEW) limited its decline to 5%, with 825 units sold.

The YoY Growth Story: A Low Base Effect

While the MoM decline was steep, the 60% YoY growth in July car sales is noteworthy. This increase is partially due to the low base effect from 2023 when the industry struggled with plant closures and inventory shortages, severely stifling sales. The 2024 figures, though reflective of a recovery, also indicate the normalization of these factors alongside the impact of new tax regulations on consumer behavior.

Performance Across Other Vehicle Segments

The downturn in sales was not limited to cars. The two-wheeler and three-wheeler segments also saw a 5% MoM decrease, with 84,993 units sold in July 2024. Atlas Honda (ATLH) led this segment with 70,255 units sold, marking a 12% MoM decline but a 13% YoY increase. Other players like Pak Suzuki Motors Company (PSMC) and Sazgar Engineering (SAZEW) reported minor declines of 1% and 11% MoM, respectively.

The tractor segment was particularly hard-hit, with Millat Tractors (MTL) seeing a dramatic 63% YoY and 78% MoM drop in sales, totaling just 605 units. Al-Ghazi Tractors (AGTL) also faced significant declines, with sales down 16% YoY and 40% MoM, totaling 855 units in July 2024. The sharp drop in tractor sales was attributed to pre-buying in June, ahead of the 10% General Sales Tax (GST) imposition on tractor sales in July.

Bright Spots: Trucks and Buses

Amid the overall downturn, the truck and bus sector emerged as a bright spot, registering a 3% MoM increase in sales, with 307 units sold in July 2024. This sector also experienced a 57% YoY growth, signaling steady demand and potential resilience in commercial vehicle sales.

Looking Ahead

The significant decline in vehicle sales in July 2024 highlights the impact of fiscal policies on consumer behavior and the broader market dynamics. As the effects of the new tax measures settle, it will be crucial for the automobile sector to adapt to the changing landscape. Industry stakeholders will likely focus on strategies to stimulate demand in the coming months, while consumers may adjust their purchasing decisions based on the evolving economic conditions.

The upcoming months will be pivotal for the auto industry in Pakistan, as manufacturers and dealers assess the long-term impact of the FY25 budget’s tax measures and navigate the challenges of a fluctuating market.