PSMC expecting much from Suzuki Swift

Pak Suzuki Motors interim CKD pricing arrangement with its parent firm has been revised back from PKR/USD terms to its previous agreed PKR/YEN based formula. The move marks the end of glory period for PSMC, forcing the firm to increase automobile prices by 2 to 4 percent.
The price hike is aimed to cushion its profit margins, which stood at mere 3 percent during the nine months ending September, against the new yen-based CKD pricing arrangement that exposes it to exchange rate volatility along with a seesaw fluctuation observed in the steel prices.
In 2008, when rupee weakened by 33 percent against the Yen - PSMCs gross margins shrank to 2 percent from 9 percent a year earlier. Additionally, the year saw 25 percent plunge in its sales volume, thanks to low consumer demand due to wide spread financial crunch and unrestricted automobile imports of various models.
Now the 3 to 7 percent increase in sales price during 2009 makes prices equal to (or above for some models) the levels prior to the removal of FED. Hence, the price hike poses downside risk to demand in todays financially constraint times, considering that PSMC caters to the price-sensitive market.
But there is a wild card for the company, and that is its upcoming Suzuki Swift, which owing to its perceived wider market acceptance should lift sentiments. Eyeing this, the management is of the view that the overwhelming response for Swift would absorb much of a possible hit from current price hike.
And considering that the firm in question, like most of its peers, is sitting on six months of steel inventory bought at lower prices, it is not only cushioned against possible steel price hike
but will also enjoy better
margins in the immediate future.
Yet, as Swift will be the first hatch-back in 1300-1600cc segment, it remains difficult to predict consumer behavior in a market where buyers have so far shown preference for smaller cars with lower operating expenses in the face of rising energy prices. The performance will better be judged once official selling prices are announced by PSMC and when the initial post-launch euphoria is over, usually in the first 2-3 months.