Car market signals mixed bag of recovery
In the first five months of this year, the market sold nearly half of what it did over the entire year of 2020
The country's car market signals a moderate recovery from Covid-19 fallout amid a mixed market scenario where an increased demand from a section of buyers is offsetting the impact of the stressed segments.
The market for sedan and hatchbacks that shrank by 26% in 2020 now appears to be outpacing sales of the previous year.
In the first five months of this year, the market sold nearly half of what it did over the entire year of 2020, according to registration data provided by the Bangladesh Road Transport Authority (BRTA).
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On top of that, in the middle of the two lockdowns this year, June was the best month for the market so far.
"Those who can afford cars are not thinking twice about letting their family members commute or travel safely. But middle class people who are in any sort of financial stress are not buying them boldly and that is hurting the market segment of budget cars," said Abdul Haque, president of Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida).
Up to the end of June this year, the car market might have achieved a double digit annualised growth, he said.
As soon as the second wave-induced lockdown was imposed for April-May, there was a brew of pent-up demand and in June, sales were up much, said Abdul Matlub Ahmad, president of Bangladesh Automobile Assemblers and Manufacturers Association (BAAMA).
Both industry leaders are worried about whether they will have to shut the sales outlets again for a rise in infections.
If the recent pace continues, the market could end with total projected sales of nearly 15,000 units this year, they said.
But more than a month-long shutdown after June has already impacted sales recovery, even if the post-budget market should see buyers more interested, especially in hybrid cars that were made slightly cheaper.
Shrinkage and recovery
The tiny car market of Bangladesh, extremely dominated by Japanese reconditioned cars, has been in a shrinking trend since its 2017 peak of nearly 22,000 sedans and hatchbacks and more than 5,400 sports utility vehicles (SUV).
Abdul Haque blames the adverse tariff in recent years that made the most popular cars less affordable and lose market share to their brand new counterparts as the gap between brand new and reconditioned cars has been narrowing in recent years.
Brand new cars used to make less than 10% of the market a decade ago, which improved to around 20% in 2020; and Haque, like many other car sellers, estimates that brand new cars already have made one-fourth of the car market pie this year.
At the same time, economic conditions and stressed personal finances, insufficient and inconvenient car loans, high registration and maintenance costs have been among the reasons behind the car market's slowdown, said Abdul Haque.
Covid-19 further dented the downward curve of the car market as the government stopped all its car procurement in the interest of austerity from mid-2020.
However, another move – distributing Honda cars in Bangladesh – of the government helped offset lost sales at the same time, said Arman Rashid, general manager of DHS Motors.
Senior civil officials have been getting low-cost car loans of up to Tk30 lakh each in recent years and senior defence officials joined the pool of buyers this year. They are mostly buying mid-range sedans or compact SUVs their families prefer.
The Barvida president estimates that state officials upheld nearly one-fourth of the market demand which was supposed to have been eroded due to the halted government procurement.
Corporate procurement and family purchases are throwing up a mixed scene, as both Haque and Rashid feel.
Companies preferring austerity amid their business uncertainty went slow in purchasing cars for their eligible employees last year and some are still doing the same, they said.
However, as they have learned that the pandemic is more or less manageable for their business and the government gave them a hand through providing them with subsidised working capital loans, corporate car buyers' confidence has increased for sure.
"Demand is more robust for high and medium range cars, and also the brand new ones – being it entry level or premium sedans or compact SUVs," said Arman Rashid, "as the buyers of these segments are more serious about the needed utility than affordability."
Mainly the buyers of budget cars – for most of whom a car is a once or twice-in-a-lifetime investment – are faltering as they have to strike a balance between affordability and needs.
Matlub Ahmad said those for whom the price of a car matters a lot mostly have suffered some sorts of financial adversities during the pandemic and the most affordable cars are selling less.
Sales of the low-cost brand new Tata cars – yet to gain a needed volume in the Bangladesh market – dropped further this year.
Some average buyers who were planning for better cars now are ending up with buying the next cheaper ones, he added.
Nayeemur Rahman, head of business planning at Uttara Motors Ltd, the distributor of Suzuki cars, said premium and mid-range sedans alongside SUVs are rolling out better in the market while the entry level cars are yet to.
Demand for SUVs, mainly the compact ones, have been in better consistency here over the last couple of years – decline less in bad years and growth more in good years, as many people now prefer those for a comfortable ride on the below-average road surfaces across the country.
JM Taslim Kabir, head of marketing of Fair Group that is assembling Hyundai cars in Bangladesh, said its brand new sedans and SUVs are selling in an increased volume nowadays.
DFSK cars are attracting an increasing number of buyers as these offer many utilities and features at comparatively lower prices and also a brand warranty, said Monirul Islam, head of customer relations at MA Enterprise, a local assembler of the emerging Chinese brand.
All this indicates people's rising aspirations for convenient and safe commuting and that would be at the heart of the market growth, said the car marketers.
Market hits rock bottom?
Maybe the market will not face a further decline from the 2020 numbers, if the government allows people to buy cars through taking care of affordability, lowering registration and annual maintenance costs alongside helping sellers to keep continuing in any situation, said Barvida President Abdul Haque.
"But we are not too optimistic about a takeoff seeing the still remaining irrational moves by the government."
"Take the recent situation for example where car imports are allowed but sales are not during lockdowns," he said adding that around 6,000 cars are stuck at the two sea ports of the country as the customs, ports and banking services are opened during the lockdown while no show room can be opened despite the fact that automobile dealerships are not a place for crowding which might spread Covid-19.
If government offices do not address such problems rationally, the sector would remain similarly prone to any new shocks, fears Haque.
He said, usually in the ports 4,000 cars keep waiting to be shipped to the dealers' sheds, which grew by 50% in the lockdown.
Even after dealer outlets opened, they would need convenient car financing and Barvida has written to the central bank to allow banks to finance up to 80% of a car, up from the existing ratio of 50%, Haque added.
He also urged the government to eradicate some unnecessary obstacles, like registration process and too cumbersome but ineffective annual fitness tests that discourage car buyers.
"In the second wave the BRTA should have kept its registration services open, it can outsource tasks like other countries are doing," opined the Barvida president.
Abdul Matlub Ahmad, chairman of Nitol-Niloy Group that is preparing to assemble Tata's affordable cars, feels the market might not grow much from here right in this or the next year.
"But the ground is being prepared," he said. "Some brands, including Japanese, Korean, Chinese and Indian ones, are going to add more value locally in the coming days, which would bring the unit price of an entry level sedan to below Tk10 lakh."
"2021 and 2022 might not be the years for the market's much needed takeoff, but from 2023 the market should grow significantly to over 30,000-35,000 units a year," said Abdul Matlub Ahmad.
For that we must let people afford cars and with the existing mindset to impose punitive duties and fees on car buyers it will not be possible, said the Barvida president.
"Government officials might have saved the mid-range cars' market during the pandemic, but the ideal source of continuous growth is always the masses," he said, adding, "without a scale the dream of a local car industry might falter."
