During 1HFY17, the average month-on-month car sales was around 14,000 units—we are now looking at more than 17,000 units sold per month, on average, as we enter the second half of FY18. These are only the ones that are assembled locally and don’t even include imported vehicles sales.
As recorded by Pakistan Automotive Manufacturers’ Association (PAMA), the locally assembled passenger cars, jeeps, commercial vehicles and tractors grew by 32 percent in 1HFY18, year-on-year, with the highest growth witnessed in cars with less than 1000cc engines, and tractors. Meanwhile, imports of Completely Built Units (CBU) cars have grown by a staggering 71 percent in the July-Nov period this fiscal year against the period last year.
After the rupee devaluation of 5 percent, the three car assemblers; Atlas Honda (PSX: HCAR), Pakistan Suzuki (PSX: PSMC) and Indus Motors (PSX: INDU) increased car prices across their respective fleets. Because of dependence on imported content (which they use for local assembly), their imports have now become expensive. Both Toyota and Honda’s prices have gone up by up to Rs60,000 while Suzuki raised prices for Mehran, Ravi, Bolan and Wagon-R by Rs10,000 each.
Though the CKD/SKD imports for cars grew by 26 percent during July-Nov, the import bill for these will be much higher in the post-Dec numbers owing to the rupee depreciation. Moreover, regulatory measures taken to curb the imports may also start revealing soon as Pakistan Bureau of Statistics (PBS) publishes trade numbers for December.
It is unlikely that demand for Honda or Toyota will simmer down by a wide margin because of the price increase. The two carmakers enjoy the advantage of having a relatively inelastic demand and in fact, a huge own-money market exists for these cars that charge a premium to deliver the cars without long delays. This does suggest that consumers are not concerned as much for incremental changes in prices. Meanwhile, nominal price hikes for Suzuki cars is also unlikely to hamper demand for these high-volume cars.
In fact, for Suzuki’s niche in small cars, the demand is aplenty. Aside from Swift, the company’s Cultus, Wagon-R, Mehran and Ravi are gaining tremendous traction growing by 33 percent combined. Wagon-R in fact now occupies 20 percent space in Suzuki’s sales volumetrically. If the government is able to double down on used car imports, Suzuki cars—which operate in the same market space as used imported vehicles coming into the country—could shoot up further. Meanwhile, Ciaz and Vitara in the sedan and crossover markets are being imported by Suzuki as well.
Honda was last year’s success story and is continuing to outperform the other two in terms of growth, if not volume. Its crossover SUV, Honda BR-V sold over 5,000 units during 1HFY18. It was only launched end of last fiscal year and is already piquing interest of high-income car buyers who are looking for comfortable, family cars that are also great for long travels. It doesn’t have any competition from other local car models, given that Vitara is imported (hence, costlier) and Toyota’s Fortuner is a full blown SUV and not quite in the same category.
Fortuner itself is a massive hit apparently, even if Corolla remains Indus Motor’s flagship variant. However, in the growing car economy, Indus Motors has lost a chunk of its market share—now at 24 percent against 29 percent this period last year. The company is undergoing an expansion which would boost production and this couldn’t have come sooner as it seems the company continues to face constraints in keeping pace with the demand of the market.
Critics often say local automakers support own-money markets by selling high volumes to their investors that later sell to customers on premium while the average car buyer has to wait 6-8 months for delivery. However, Indus Motors took decided steps to single out bulk buyers of its cars and eventually cancel bookings of those who were involved in these activities. This could affect sales over the next few months but it is unlikely to thwart organic demand among buyers for Toyota vehicles. With a handful of new players bidding to enter the market, existing assemblers seem prepared enough to enter the race—though they do enjoy a leg up. New players have a lot of ground to cover. More on that later.
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