UML says less reliant on vehicle imports due to robust assembly operations

• Hints on lower probability of vehicle import bill  overshooting  with opening up of vehicle imports 

As the government prepares to resume vehicle imports later this year, one of Sri Lanka’s oldest automobile companies, United Motors Lanka (UML) PLC, has indicated that it has become less reliant on vehicle imports due to its robust assembly operations. This development suggests a lower likelihood of the vehicle import bill overshooting and reduced pressure on foreign exchange this time around.

United Motors Group Chief Executive Officer/ Executive Director Chanaka Yatawara  shared the optimism of the high possibility of vehicle market being opened up in this new financial year with the company’s shareholders in the latest annual report.

“If and when this happens, we should be able to get back to our normal operations of import and sales of key Japanese, Chinese, and Malaysian brands we represent.

“Even though the market opening up for imports will be very good for us, we have prepared ourselves to be less dependent on vehicle imports by depending more on our assembly operation, increasing the sales of our existing products and services, and venturing into overseas markets,” he elaborated.

Accordingly,  Yatawara   expects one of the best years for the automotive industry in the near future,  supported by recent key economic trends.

“I believe that 2024/25 will be a much better year. Our inventories at higher exchange rates have reduced significantly, bringing the finance costs down. Overall exchange rates have decreased, and the borrowing rates have also come down to single digit. The economy seems more stable, and we don’t expect disruptions to general operations. This itself will support the existing business model to deliver better results as experienced in the last few years,” he added.

The number of brand new vehicles imported as an industry was around 50,000 vehicles in the 
year 2016/17; this has decreased to a mere average of 2,500 units a year since the import ban. The vehicles currently being sold are from licensed assembly operations that turn out very few and limited models. The UML group has a 21 percent share in this operation and a 75 percent market share in the SUV category.
Even though the assembly operation is allowed under the import ban, Yatawara pointed out that there had been several other policy issues and challenges in the last few years.

Unimo Enterprises Limited (UEL), a unit of  UML holds license to assemble vehicles. UEL assembled and sold nearly 400 units during the FY. However, due to inventory buildup from the previous year when the operation was temporally on hold due to a local component supplier issue, the company had to incur high finance cost even during this year. 

“Even though having a product to sell during the import ban was an advantage, the inventory buildup happened at several different exchange rates. A combination of the higher rates and the imposing of the 18 percent VAT in January pushed the prices of the vehicles up by about 60 percent. This resulted in the product being less affordable in the market,” Yatawara     noted.

The company plans to add three new vehicle brands to its production line for assembly at different price points. 
“This is what we were unable to do previously due to the lack of right hand drive (RHD) vehicle brands. We made significant progress in early 2024, signing up with new suppliers for both Petrol, Diesel and EV RHD. We believe that several of these vehicles could be produced and sold by second half this year. We have already commenced the assembly of commercial trucks in 2023,” he added. Moreover, , the company plans to add a lower priced new brand to its portfolio in the first quarter of the new year. Meanwhile, the company has been successful in restricting most of the parallel importers and have got better pricing commitments from the principal. 

UML records Rs.273 mn loss in 2023/2024 FY despite Rs.356 mn PBT 

United Motors Lanka posted a profit Before Tax (PBT) of Rs.356 million in 2023/2024 FY, mainly from its after sales operation, Valvoline lubricant sales, and other investments. 

However, the other group companies, which are more dependent on vehicle sales and construction machine sales, were affected badly with Unimo Enterprises Ltd incurring a loss of  Rs.494 million and UML Heavy Equipment Limited incurring a loss of  Rs.321 million, resulting in the Group PAT being a loss of Rs.273 million.