The sector has evidently broken its proverbial barrier of manufacturing 200,000 cars by crossing that mark, landing for the first time at nearly 230,000 cars and jeeps in FY18 against some 189,000 cars the previous year. It is telling that after first reaching 180,000 sales marks in 2007, the industry has only just crossed 200,000 after more than a decade of floundering through. Lack of capacity, monopolistic practices and entry barriers, higher prices, failed policies, and lack of financing avenues all ensured the industry would remain stagnant for years to come—in volumes and in spirit. The tide has started to turn now. But first, let’s talk current numbers.
Despite all three automakers raising prices twice between Dec-18 and Mar-18 (thrice if we count Jul-18), passenger cars and jeeps grew by 21 percent. Suzuki vehicles (cars together with its pickup) grew by 26 percent, Honda by 31 percent and Toyota Indus by only 5 percent, according to data reported by Pakistan Automotive Manufacturers Association (PAMA).
Pakistani Suzuki (PSX: PSMC) now carries 56 percent market share against 54 percent during FY17 owing to the phenomenal and continued success of Wagon-R. It remains the fastest growing vehicle in the industry despite the company raising prices for it by 6 percent in March. Meanwhile, Mehran continues to be one of Suzuki’s top performers—despite the many allegations made against it for being a cheap quality car. It is because of this market perception that Suzuki announced its final production call for the car which has had quite the 20-year run. It is longest running locally assembled car in history.
November will be the last month that Mehran will be manufactured. In any case, the model is so old that the company will be hard-pressed to find some of the imported parts for it, though the car is nearly 90 percent localized. In any case, off to greener pastures Suzuki goes. The company may bring in another model like Alto-660cc but if investments have already been made in moulds and dies, officials and auto parts guys are keeping mum about it.
Other honourable mentions for Suzuki are its pricier Cultus model introduced last year that has done quite well for itself. Suzuki Ravi has also shown consistent growth despite facing competition from FAW carrier which costs more but is substantially better quality. Unfortunately sales numbers for FAW carrier are not available to do a more accurate comparison.
Honda Atlas Cars (PSX: HCAR) has also been slowly growing market share. In FY18, its contribution stands at 20 percent (FY17:18%, FY16:12%). The company turned around its fortunes by introducing the new civic, and a locally assembled cross SUV that has quickly snagged its spot in the market. The variant sold over 4 times more during FY18 against last year when it was introduced. The variant is great for on and off-road travels and is a safe and spacious option for families. There is a reason why SUVs are popular vehicle choices for families around the world and this trend may pick up here as well.
Of the three, Indus Motors (PSX: INDU) has seen the least growth with its flagship Corolla settling in a quiet lull. The company’s sales for the variant fell by 2 percent and some months the variant did better than the other.
The company raised capacity to manufacture 75,000 units working overtime but only about 51,000 units were manufactured and all of them were sold. There is no doubt that Corolla’s demand is unbeatable. It continues to be a consumer favourite but the supply does not keep up with demand—it is still unclear why. The delivery takes nearly six months for these vehicles, which is what had led to own-money where investors were buying in bulk and selling them off on premium. Toyota has been canceling many of these bookings.
The existence of own-money is one indicator that demand is persistent. However, if Toyota cannot keep up with demand, car buyers could move on, now that they will have a choice. So many new car ventures are entering the market that will potentially compete in the same space and segment Toyota operates in. This is the time for existing OEMs to work doubly hard, instead of being overconfident.
On Fortuner’s success, this column has said earlier: “while it may not be a dead ringer for some of the more popular SUVs like Prado or Land Cruiser, it holds its own given it is close to the shape, size and capacity of the other SUVs but may be cheaper given the others are imported in CBU forms while Fortuner is locally assembled”.
Whereas new comers will inevitably give competition to local assemblers, some changes in the economy may not be favorable. Financing is expected to become expensive if interest rates are raised while currency depreciation is already showing inflationary effects. Further price hikes could bring purchasing power down. Economic fundamentals may put a dampener on the recent high the sector has experienced, which would be a shame as the ball had just started to roll.
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