Auto industry’s comeback looks different

There is a recovery underway in Pakistan’s auto market which is fully visible in the five-month sales data for FY26. Such a recovery looks very different from that existed at the industry’s last peak. Total passenger cars, SUVs and LCVs sold in 5MFY26 were close to 75,000 units, up 47 percent from last year, a significant jump for the industry. But these volumes are still at least a third below the market’s historic peak. That peak year was just four years ago in FY22 when the market looked credibly different from what it looks today.

For one, new launches had just come to market. Hyundai was only one year into the launchof its models Elantra, Sonatra, Tucson and Porterin FY22 but already mopping up 4 percent of the market. Changan was launching its first cross over SUV Oshan after Alsvin started selling a year before and Kia had already launched Stonic. Haval was still making just rickshaws (though it was bringing Haval Jolion CBUs as early as 2021).

Sticking out like a thumb in FY26 is the emergence of various categories of SUVs that have invaded the market and are outperforming with volumes. From just last year, SUVs and LCVs have risen more than 60 percent and their share has expanded to roughly a quarter of total sales—the highest level ever. This is no longer a marginal trend. The shift toward utility vehicles explains the rapid influx of new SUV model launches to the degree that every assembler wants a piece of this high-margin pie, even a company like Suzuki which is launching Suzuki Fronx to the market.

The recovery is across the board, some performing better than others. For instance, passenger car demand has improved (up 43%) but this recovery seems uneven. Volumes are well below peak levels, particularly in the mid and upper sedan segments. While Honda and Toyota have posted strong year on year gains, current volumes don’t match their previous market performance. The question is: are sedans still the backbone of the market that they once were?

In 5MFY26, more than half of the passenger car market (56%) is dominated by Suzuki’s hatchbacks while 26 percent and 15 percent are Toyota’s Corolla+Yaris and Honda’s City+Civic sedans respectively. The rest—2 percent—belong to Hyundai’s Elantra and Sonatra. While the passenger car market did not look too dramatically differentfrom this before, as Suzuki always dominated the market, the difference here is not only that legacy companies have shared some of their demand with new entrants, sedans have shared a fair portion of its demand with SUVs with people modelling up due to greater options.

At the lower end, legacy models like Mehra and Bolan redirected demand to Alto which has absorbed much of the small-car segment, operating close to its historic peak as Every took over the space vacated by Bolan. Affordability constraints and lack of options at this level haveensured Suzuki continues to drive market volumes, if not the bottom-line.

Competition has started spicing up the market, which could forcecompanies to offer financing deals and more attractive bells and whistles, there is still no visible price competition. Both Hyundai and Haval now command a meaningful slice of the industry volumes, largely through SUVs, as Toyota’s share stabilized and Honda’s share remained structurally smaller. The market is more crowded certainly, maybe more competitive and slowly less dependent on the Japanese assemblers as buyers take a chance on Chinese brands. But growth in market size is limited and selective.

Growth in the coming year will be driven by buyers who can afford larger vehicles or are prioritizing practicality over traditional sedan ownerships. Bigger is better in the Pakistani market. With financing costs becoming cheaper, SUVs (including electric options)and cross overs for previous sedan owners may not be a giant leap. For manufacturers, the incentive is clear: high margin models and segments will set the pace. For the industry: the pie may still be smaller, but the slices have changed.