Over the past year, analysts, car enthusiasts along with this column have postulated that the new auto policy will bring several new players to the fore which would lead to greater competition which would in turn lead to better quality and lower prices cars. (Read “Playing your cars right: an update”, published on June 5, 2017). More recently though, optimism on the subject has thinned out.
Audi may not come after all since its plans were rejected by the government. The Ghandhara investment of $100 million with the Renault-Nissan alliance did not pan out either and though Renault announced it would come in with the UAE group Al Fattaim, they are keeping mum on investment numbers and production plans. That leaves Lucky and Nishat’s plans—with an estimated combined investment of $250 million—which are on track.
BR Research market intelligence and guestimates suggest that together they could bring nearly 50,000 cars by 2019 but it is debatable whether this will be possible. Greenfield assembly plants take considerable time to set up. The two groups will have to first test the market with imported models and then start local assembly all the while bringing dealers and auto parts makers on board. That many cars so soon are an uphill task!
The problem is not whether new models would be absorbed by demand. Local cars sell at roughly 200,000 units whereas another 70,000-80,000 cars are imported of which majority are used cars. Dealers estimate that Pakistani demand could go up to a million cars immediately if they were affordable and up to 10 million over the next few years. While such tall claims may entirely be based on the “feel of the market”, the growing appetite for cars cannot be underestimated. The fast influx of used cars coming into the country substantiates growth projections to a great extent.
Clearly local assemblers aren’t meeting the demands on many fronts. Car buyers prefer imported cars over local not only because of affordability—at least comparatively—but also the myriad of issues that ail the latter. Local assemblers are not keeping with global standards for quality and every new face lift leaves much to be desired if car reviews are anything to go by. Car buyers believe two-year old used cars have superior quality, with better add-ons than a new locally assembled car.
Lacks of investment into their manufacturing means OEMs are under-producing. Pre-booked cars take more than four to six months for delivery. Dealers charge hefty premiums to deliver these cars on time. On the other hand, one can go to the nearest car dealer and take home a freshly imported (registered or unregistered) car on payment—no delays and no premiums.
Despite these shortcomings, they don’t face much competition from imported cars. Suzuki may be the only one of the three which possibly could since it assembles small-engine, mid-sized cars and that is the segment where most traction is seen in imports. But its sales have not wavered. For Honda and Toyota, there isn’t much competition from anywhere, as both brands have loyal followings and niche markets.
What about competition from new players? With Renault’s plans unclear, and no other European carmaker bidding to enter; we are left with South Korean Hyundai and Kia which will likely bring 800cc-1000cc hybrid, compact cars. Even if they bring sedans, since local assembly of the aforementioned cars will take longer, the initially imported ones may even be higher priced than existing cars. Both new car venture groups will take at least two-three years to find their bearing in the market, if that.
Furthermore, they will have been very committed to penetrating the Pakistani market for the long haul. Once the excitement of new shiny bobbles die down, consumers will have to be wooed. In order to keep with expectations, the two will have to move with global upgrades and innovations in the automobile industry. They will have to create a parts market and meet localization targets to cut down on costs. A lot more investment will have to be brought in than the initial set-up capital to grow to scale and bring prices for consumers down.
Meanwhile since announcement of new ventures, the three OEMs have become more active. Toyota is expanding capacity with Fortuner doing remarkably well. Honda’s new Civic and Honda BR-V are selling like hot cakes. Suzuki introduced Wagon R and new Cultus that have picked up market share fast, while dipping in toes in other segments like Sedan and SUV with Ciaz and Vitara respectively. With this whole picture in mind, will we see new players give vicious competition to these three? Call us a skeptic, but this column is more uncertain than ever.
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