Automobile sector gaining maturityIf there is one industry that has posted a consistently aggressive growth rate in the past one decade, it has to be the automobile industry.
If there is one industry that has posted a consistently aggressive growth rate in the past one decade, it has to be the automobile industry. Except in fiscal years 2010-11 and 2011-12 when the bubble burst in the real estate sector resulting in a setback in almost all the sectors including vehicles, the auto sector has seen only growth. With stability in the growth rate and business, traders say that the auto sector has gained maturity.
Automobile dealers say that the sector is witnessing an annual growth of 15-20 percent. The data of the Department of Transport Management (DoTM) supports their claim. According to government data, there were 76,378 vehicles registered in Nepal till fiscal year 1989-90. It took around two decades for registrations to reach the one million mark.
From the fiscal year 1990-91 to 2009-10, Nepal witnessed the registrations of one million vehicles. One million vehicles have been added to the registration list in the last five years. DoTM data shows the trend of purchasing vehicles in the past few years. Registrations have crossed 2 million and counting.
“The growth in the number of automobiles in the past few years has been impressive,” said Shekhar Golchha, president of the Nepal Automobile Dealers’ Association (Nada). “In the absence of abundant means of public transportation, the tendency of buying a personal vehicle has increased.”
According to Golchha, the country’s automobile sector has witnessed a growth of 15-20 percent every year. Even though the growth is significant, there is a lot more space for vehicles in the country.
According to Golchha, the penetration of personal cars amounts to a mere 0.6 percent of the country’s population and the penetration of two-wheelers stands at just 6 percent. “The auto sector is an important sector for the development of any country,” Golchha said. “We need more vehicles to propel growth.”
There are a number of factors that have helped to propel sales of automobiles in the country. Increased affordability, easy financial access, growth in the inflow of remittance and a rise in the number of people earning middle-class incomes are among the major factors helping the auto market to swell.
However, the major factor contributing to the rise of automobiles is the unavailability of abundant public transportation services. Be it in the country’s capital city Kathmandu or remote villages, public transportation is poor. While people in Kathmandu are compelled to buy a vehicle due to the hassles of travelling on public transportation, in remote Nepal, the unavailability and inconsistency of public vehicles forces people to arrange their own transportation.
While the government has nothing much to do in the transportation sector as its stake here is almost negligible, the private sector which accounts for more than 95 percent of the transportation sector has shown a tendency of operating only on profitable routes and creating a syndicate to prevent new players from entering the market.
“There is a mismatch in the population-to-vehicles ratio. In developed countries, the ratio of vehicles is 55-60 percent of the total population. In our case, the ratio is pathetically low,” said Chandra Man Shrestha, director general of the DoTM. “The concentration of vehicles seems to be too high in city areas. But this concentration too has failed to fulfill demand in the cities.”
Realizing this fact, Shrestha says the government has decided that there is no alternative to an efficient mass transportation service in the cities as well as rural areas. The government aims to introduce 80 big passengers buses in Kathmandu under the Kathmandu Sustainable Urban Transportation Project. “There is no alternative to mass transportation,” Shrestha said. “The project will be a pilot project for the government. Further efforts will be made to remove transportation woes in the country.”
The country’s private sector, however, isn’t convinced by the efforts of the government. “We keep on hearing about government initiatives to make the transportation service efficient. However, nothing much has been done,” said Anjan Shrestha, vice-president of Nada.
“The automotive sector contributes around Rs60 billion to the government. The amount is utilized in other sectors. The development of infrastructure is poor.” Shrestha added that the road network in city areas has increased by just 10-15 percent in the past two decades.
The private sector is of the view that the government continues to see the automobile sector through a traditional lens. “The automobile sector is still considered a luxury. This is distressing,” Shrestha said.
Saurabh Jyoti, the immediate past president of Nada, stressed the need to implement government plans and policies to sort out the issues and challenges being faced by the auto sector.
“The budget statement for this fiscal year has talked a lot about roadway expansion and upgradation. We need to focus on the implementation aspect,” Jyoti said.
The growth in the automobile sector has increased competition among domestic automobile dealers. Despite being a relatively small market, Nepal boasts the presence of almost all the major automobile brands. The market size has been increasing slowly. With the increment in the market size, competition too has surged compelling auto sellers to offer more facilities and services to their customers.
“We see the highest growth in B segment cars. Demand for cars having an engine capacity of 1,000 cc or less is decreasing. With regard to two-wheelers, the sports segment is growing while the commuter segment is slowing down. This shows that our market is moving towards maturity,” Golchha said.
Another development which shows that Nepal’s automobile market is moving towards maturity is the fact that auto sales have started witnessing good growth outside Kathmandu too. According to Shrestha, while Kathmandu used to make up 60-70 percent of the total market for two-wheelers, the situation now is the other way around. “In the four-wheeler segment too, growth has been significant outside Kathmandu,” Shrestha said.