Bangladesh’s economy has faced tough times recently, as persistently high inflation, rising interest rates and a significant devaluation of the local currency continue to plague the country. In this series, we look back at how different industries responded during the 2022-23 crisis. This is the second part of the automobile industry.
Auto sales in Bangladesh fell sharply in 2022-23, with the country recording the sharpest decline in profits among all sectors due to lower production and demand, industry sources said.
Local automakers had to reduce production in the last financial year (FY) as the US dollar crisis made it difficult to open letters of credit (LC) to import parts and spare parts.
Additionally, domestic inflationary pressures have limited people’s purchasing power, forcing them to focus their money on buying necessities rather than luxuries such as private transportation.
The country has four listed car manufacturers – Runner Automobiles, IFAD Automobiles, Aftab Automobiles and Atlas Bangladesh, which together contribute to the majority of the industry’s annual sales. .
According to the financial statements, the combined sales of these companies in FY2013 decreased by 22% from the previous year to Taka 1,684 million, and only Aftab Automobiles Co. Ltd. saw an increase in sales. was.
Therefore, the overall profit for FY 2021-22 was Tk 82 million, while the loss for the same year was a total of Tk 120 million.
“Like the rest of the world, Bangladesh’s auto industry faced disruption in 2022-23,” said Shanat Dutta, chief financial officer of Runner Automobiles.
This was mainly due to the lack of materials needed to manufacture cars due to the weak economic environment as the foreign currency crisis forced the government to restrict imports, he added.
According to Bangladesh Bank data, local automakers opened LCs to import auto machinery and parts worth $119 million in the July-April period of fiscal year 2022-23, down 21% from the previous year. was.
Similarly, the amount of LCs opened for the import of finished cars decreased by 59% year-on-year to $281 million during the same period.
Dutta also said that in the face of persistent inflation, consumers have started prioritizing the purchase of essential items, and this trend is more visible in rural areas where people are grappling with greater financial burdens.
According to data from the Bangladesh Bureau of Statistics, inflation pressures in the country eased slightly to 9.41% in December 2023 after hovering above 9% since March of the same year.
“These factors have triggered a slump in demand for low-displacement bikes,” Dutta added.
On the other hand, there has been a noticeable shift in demand towards larger displacement bikes, redefining the contours of the market in the process.
This could be because high-income households are still somewhat insulated from inflation, meaning premium demand is more or less unaffected, Dutta said. Stated.
Still, Runner’s sales in fiscal 2023 fell by 40% from the previous year to Tk 662 million, with a loss of about Tk 960 million, the company’s first loss in at least 10 years.
Runner has a production capacity of approximately 500 motorcycles per day and manufactures the 9 series motorcycles, consisting of 40 models with engine displacements from 50 to 200 cubic centimeters.
Runner also produces five models of three-wheelers powered by liquefied petroleum gas and diesel.
However, despite a challenging fiscal year 2022-23, industry players believe that with the introduction of supportive policy measures, there is great potential for the business in the coming years.
Since the formulation of the Automobile Industry Development Policy 2021, about Tk 2.5 billion of new investments have already been made in the industry.
According to this policy, two-wheeler manufacturers, along with three-wheeler and four-wheeler assemblers, will enjoy reduced import duties on raw materials.
With an annual production capacity of approximately 2,400 vehicles, Aftab Automobiles currently assembles private and commercial vehicles designed under the Japanese Toyota and Hino brands.
The company’s sales surged 66% to Tk 118 million in FY23, registering an increase in profit of Tk 41 million compared to Tk 10 million a year ago.
Shafiul Islam, chairman of Aftab Automobiles, said the commercial vehicle sector faces a volatile business environment amid rapid changes and increasing competition.
He said the effects of the nationwide lockdown due to the coronavirus pandemic and the ongoing Russia-Ukraine war are having a dire impact on all sectors of the automotive industry.
“However, we believe that the current impact is temporary. We expect to overcome the current economic environment within the next year,” Islam added.
He also said that the construction of Padma Bridge and other major infrastructure projects will have a huge economic impact on the country and the automobile industry.
The Padma Bridge connects the southwestern part of the country with the capital, resulting in revolutionary changes in the transport sector.
Therefore, the demand for air-conditioned and non-air-conditioned buses is increasing as transport companies operate new routes, Islam added.
IFAD Autos’ revenue for fiscal year 2023 fell 4% year-on-year to Tk 930 million, suffering a loss of Tk 150 million for the first time in at least 12 years. The company recorded a profit of Tk 41 billion in FY 2021-22.
IFAD Autos imports complete vehicles of various models manufactured by Ashok Leyland along with completely knocked down units and spare parts of Indian brands.
The company also deals in Farmtrac brand agricultural machinery and related spare parts imported from Escorts Limited.
Atlas Bangladesh, another listed automaker, saw its sales fall 98% year-on-year to Tk1.54 billion in FY23, with a loss of Tk9.6 billion following a loss of Tk4.8 billion in the previous year. Covered.