KARACHI - All major auto assemblers profits declined by 40 per cent in January-March 2008 while the net profits of auto assemblers during the period under review stood at Rs744 million as against Rs1.3 billion in the corresponding period of last year. The four major auto assemblers in Pakistan, Indus Motor, Pak Suzuki, Honda Atlas and Dewan Farooque, covering 65 percent of the total auto sector market capitalization and 99 percent of total cars and LCVs sales, have been selected to draw up the accumulative results of auto sector. Net sales of industry stood at Rs27.3 billion versus Rs29.2 billion during the same period last year, also showing a downward trend of 7 percent. The decline in sales was a direct impact of tumbling volumetric sales which dropped by 8 percent to stand at 47k units (Cars + LCVs) during January-March 2008. In addition, gross margins went down sharply by 330bps to 6.3 percent amid increasing steel prices and 16 percent appreciation of yen against rupee. This negatively impacted industry's gross profits in the period, as cumulative gross profits saw a massive decline of 39 percent to land at Rs1.7 billion. Other income, which constitutes around 20-25 percent of the profit before tax, also posted a decline of 41 percent in the period under review. This has been due to the declining cash balances of the companies owing to low delivery periods. Out of the four leading car assemblers, Honda Atlas is the only company that displayed positive growth in their profitability. The company improved from its losses of Rs138mn in January-March 2007 to a net profit of Rs76mn in January-March 2008. Although, volumetric sales and net sales for Honda declined by 21 percent and 19 percent respectively, the 24 percent reduction in cost of sales mainly due to the new depreciation policy resulted in positive gross margins of 7.8 percent in January-March 2008. Moreover, the company has been able to reduce its selling, distribution and other operating expenses resulting in net margins of 2.1 percent. The two leading auto assemblers Indus Motor and Pak Suzuki, along with Dewan Farooque showed lackluster performance during January-March 2008. Apart from Indus, the other two companies showed a decline in volumetric sales. Moreover, the companies witnessed high cost of sales as the cumulative cost per unit went up to Rs480k in January-March 2008 as compared to Rs418k during the same period last year. Advance cash balances for these companies have been declining as delivery periods have improved, causing other income to decline significantly. Analysts said that although law and order situation has slightly improved, restricted auto financing facilities by banks, political uncertainty and higher product prices are likely to keep volumetric sales for local auto assemblers under pressure. Furthermore, the rupee/yen parity and steel price scenario is not expected to favour the local auto industry.