During the infamous Indian embargo that lasted four and a half months from the end of September 2015 to the beginning of February 2016, automobile dealers, like all other traders in Nepal, were effectively immobilized. No shipments came in, and business slowed to a virtual standstill.

But no sooner had the blockade ended than Nepalis unleashed their purchasing power, particularly on two- and four-wheelers. Sales soared to dizzying heights as happily astounded dealers watched cars speeding out of their showrooms.

At the end of the last fiscal year 2015-16, vehicle registrations increased more than 43 percent with total registrations reaching 343,765 vehicles for the year. Automobile registrations have been swelling 15-20 percent annually for the past several years. The auto trade has posted a consistently aggressive growth rate in the past one decade. Except in the fiscal years 2010-11 and 2011-12 when the bubble burst in the real estate sector resulting in a setback to almost all the sectors including vehicles, the auto sector has been seeing only growth.

“This shows how the automobile sector, despite facing such a long blockade, has emerged as a necessity for people instead of a luxury,” said Anjan Shrestha, president of the Nepal Automobile Dealers’ Association (NADA).According to NADA, 7 percent of the country’s population owns a motorcycle and 0.7 percent of the population owns cars. The figure is still small and there is a lot of room for much bigger growth, which is clearly reflected in the blockade’s not affecting the growth of the auto market, auto dealers said.

Driving forces

Automobile dealers who needed a boost in sales after the blockade got a helping hand from banks and financial institutions (BFIs) in the form of cheap auto loans. They lent money to buy cars for as little as 6 percent interest as they needed to rev up their business too since credit outflow had almost ceased during the blockade.

“As we also fulfilled backlogged orders after the blockade and there was new demand creation, vehicle sales soared,” said Shrestha.

The banking sector has been facing excess liquidity for the last few years which enabled them to issue credit at a cheaper interest rate.

Looking at the data of the Department of Transport Management, it can be seen that almost every category in the automobile sector witnessed whopping growth. For example, car, jeep and van registrations rose 109 percent while motorcycle registrations grew 36 percent. Registrations of minibuses, mini trucks and heavy equipment such as dozers and excavators also doubled in the last fiscal year.

Besides the availability of easy loans, a growing road network and increased income levels also helped to push up the auto market, according to Sandeep Kumar Sharda, managing director of Pioneer Moto Corp, the authorized dealer of Datsun cars.

“The last two years have also seen a high number of taxi replacements, and the earthquake reconstruction programme has also increased demand for utility vehicles,” he said.

According to vehicle dealers, a surge in the registration of heavy equipment was seen due to their increased demand for reconstruction purposes after the earthquake.

“We have been overwhelmed by orders for heavy equipment,” said Kapil Siwakoti, chief executive officer of IME Automotive, the authorized dealer of Escorts construction equipment. “But we are worried that there are not enough operators of heavy equipment because of stringent licence criteria.”

Auto dealers said that demand for utility vehicles rose in the aftermath of the earthquake with domestic and international non-governmental organisations and humanitarian institutions purchasing them to travel and deliver relief materials to quake-affected districts.

This year, the government opened registrations for 2,300 new taxis after one and a half decades which allowed many car makers to compete in the taxi segment too, boosting the market for autos.

NADA President Shrestha, who is also the managing director of Laxmi InterContinental, the authorized distributor of Hyundai, said that they sold 900 taxis, enhancing the presence of Hyundai in the segment. 

A growing road infrastructure, despite the poor quality, has also encouraged many people to purchase vehicles. Shekhar Golchha, former president of NADA, said the development of road infrastructure in recent years had been crucial for the automobile industry.

“There is a motorcycle dealership even in Jumla because of road accessibility,” he said, who is also the executive director of Hansraj Hulaschand & Company, the authorised dealer of Bajaj motorcycles in Nepal. According to the Ministry of Physical Infrastructure and Transport, the country has 20,000 km of roads constructed by the Department of Roads and another 40,000 km of local roads.

Next frontier

While the Kathmandu Valley has traditionally been the biggest market for automobiles, the scenario is fast changing. Trends in vehicle registration in Narayani, Lumbini and Koshi zones show that the market has been expanding rapidly outside the valley.

In the last fiscal year 2015-16, a total of 94,721 vehicles were registered in Bagmati zone where the capital city is located. The number of vehicle registrations in Narayani and Lumbini zones totalled 71,332 and 61,843 respectively. Similarly, 46,840 vehicles were registered in Koshi zone.

Auto dealers said that extension of roads, growing urbanization outside Kathmandu and swelling remittance contributed to the rise in vehicle sales.

Economic contribution and challenges

The government collected almost one-third of its customs revenue from the import of vehicles and accessories.

According to the Department of Customs, it collected Rs60.46 billion in revenue from vehicle imports, which is equivalent to 31.42 percent of the total customs revenue collected by the department. The government charges import duty of up to 200 percent on motor vehicles which makes them expensive in the country.

“Beside this huge contribution to the national exchequer, the sector has created employment for 1.7 million people,” said Golchha. However, automobile dealers complain that the government has been repressive when it comes to charging taxes. They said that lower taxes would help to boost the sector.

While high taxes has long been a complaint of auto dealers, they said that the government’s failure to spend the capital budget for road infrastructure and poor maintenance had also prevented the sector from realizing its full potential.

“Most of the time, the government’s capital expenditure has remained very dismal,” said Saurav Jyoti, former president of NADA. “Infrastructure is the key for the growth of the automobile sector.” NADA has demanded that the amount collected from vehicle owners for road maintenance be spent on the stated purpose.

Auto dealers also said that transport syndicates had prevented the auto sector from realising its full potential. “As new vehicles are not allowed to enter the market, syndicates have been a big concern for auto dealers,” said Shrestha.