LAHORE - The ease in the interest rate by the central bank is likely to compel the bankers to reignite consumer financing, particularly car financing, because when car industry posted highest sales of 1,93,000 units in FY07, car financing was the major driver contributing about 40pc in car sales, experts said.

Therefore, cut in the policy rate holds the potential to once again rejuvenate car sales, however, the growth in sales may take time and the impact of car financing might be visible from FY13 onwards, claimed Zeshan Afzal, an auto market expert, in a report.

Therefore where experts maintain FY13 car sales assumption at 150,000 units they have revised upward FY14 and FY15 sales projections by 10-15 per cent.

Pakistan central bank, since July 2011, has slashed the policy rate by 350bps to 10.5 per cent as inflationary trends subsided coupled with some positive developments on the external front.

To support economic recovery, SBP had slashed discount rate by 350bps since July 2011 on account of controlled inflation and certain positive developments on the external front. Declining discount rate is likely to push bankers to shift to high margin consumer financing. The evidence of the same has started to emerge from recent advertisements of car financing. Further, industry sources reveal that some banks are financing cars at lower rates. Experts believe, the tendency will stimulate the depressed car industry and any further decline in discount rates holds the potential of spinning the wheels of depressed car industry.

According to experts, comparing to peak 193,000 units in FY07, car sales (including Jeeps & LCVs) has declined to 179k units in FY12. Further, it is expected that car sales will settle at 140-150k units in FY13, a decline of 16 per cent. Negative tone in sales is evident in 30 per cent decline in car sales in 2MFY13 due to termination of two models (Coure & Alto), higher CBU imports and ending taxi scheme.

Experts believe that the leasing which is currently contributing around 10-15 per cent in car sales will gradually improve to the levels we saw 5 years back given low interest rate scenario. Though it is believed that car sales will remain suppress in FY13, car financing would propel sales in FY14 and beyond. Industry expect FY13 sales to drop by 16 per cent but show an improvement of 18-20 per cent in FY14 and FY15 to 1,80,000 and 2,10,000 units respectively.

Factors such as anticipated price increases despite incoming imported vehicles, compensation through incremental sales of Hilux and Corolla post phasing out of Cuore and accounting for the recent cut in discount rate will also affect the sale of INDU. Indus Motor Company (INDU) posted a hefty 24 per cent increase in its top-line in FY12 primarily on account of 9 per cent and 7-8 per cent YoY increase in sales volume and prices respectively. Experts have eradicate any significant threat from the imported cars. Given the brand loyal and quality conscious nature of INDU customers it is expected the company will easily pass on prices and maintain its gross margins at 8.25 per cent in FY13.