Pakistan automotive industry is going through a transition. Consumers are having flavor of compact SUVs (or cross overs) at a sweet price spot after the introduction of Kia Sportage and now Hyundai Tucson. Riders of sedan (Civic and Corolla) are shifting to these compact SUVs. Supply is creating demand – market is in the process of creation for SUVs.
The demand is not for need based SUVs; but is for better engine, suspension, drive comfort and feel of being elevated. This market is likely to grow in years to come; and Lucky Motors is thinking to dominate niche SUV market. The company is planning to launch 2-3 SUVs models by June 2021 (to reap the benefit of automotive policy 2016-21); and may later come up with SUVs in EV (as a separate 4-wheeler SUV policy is in the development process).
Kia is not publishing its sales numbers; but market estimates suggest that 8,000 Sportage were sold in FY20. The current run rate is around 1,200-1,300 cars a month. It is growing. The company is planning to move to double shift to meet the booking demand. It faces a delivery lag of 2-3 months for AWD and 1 month for FWD. The company wants to deliver cars within a month of booking – that can potentially take away the infamous ‘on money’ out of the equation.
The ‘on money’ is directly proportional to the time of delivery. For example, Sportage and Tucson are almost similar cars, but instant delivery ‘on money’ on Tucson is much higher. The production capacity of Tucson is of making 10-15 cars a day; but they are struggling to reach that level. There are teething problems. The delivery time is May 2021, if the car is booked today. Estimates are that anywhere between 1,000-2,000 cars are being booked.
Nishat is also surprised by the market demand. It is importing additional kits and planning to go in double shift by January 2021. The company is resolving the bottlenecks in paint job. It is confident to produce 20-25 Tucson a day by January; and may reach 800-900 cars per month by June 2021.
Kia on the other hand has 60-65 cars per day production capacity right now. The name plate capacity of Lucky Motors is similar to Indus. The company is planning to reach 20,000-25,000 cars a year in 12-18 months. This can double in 2-3 years, if the demand grows, as it has the capacity to absorb.
Kia has launched two cars – Sportage and Picanto. There is over whelming response on Sportage while Picanto is facing tough competition from similar cars that Suzuki is producing. Compact SUVs is a virgin territory and Lucky motors is all set to capitalize on it. As the saying goes, once a customer moves to SUV, he does not pull back.
The competition in sedan category is growing. There are three models – Civic, City and Corolla. Toyota has introduced Yaris and it is the hot cake – 1,883 cars being already sold in July. Hyundai is planning to launch two models in sedan –Elantra (in competition to Corolla and Civic) and Sonata (high end sedan – in competition to Camry and Accord globally, while no such car is assembled in Pakistan), before June 2021. The market is becoming saturated. Lucky is taking smart and bold steps to become big in SUVs.
The buzz is that the company may launch a 7-seater SUV in December 2020. This will compete with the existing Toyota SUV: Fortuner. The company may launch Kia Sorento. Experts say that it has better specs than Fortuner and this will probably be launched at 10-15 percent discount to Fortuner. With panoramic sunroof and other features, at a discount to Fortuner, the product placement may succeed in making a killing, provided 2020-21 model is launched.
In 2017-18, on average, 275 Fortuners were sold per month while the sale of Toyota Hilux was 593 units during the same period. This is the SUV market where buyers look for off-roading features. Military and politicians are big buyers of SUVs and trucks (Hilux). Kia Sorento will create competition here.
Lucky Motors may launch another crossover (or compact SUV) before June 2021. This will be a model below Sportage. It shall target budget SUVs, like Sportage is shifting Civic and Corolla customers to SUVs as the price difference between these Sedan and Sportage is low. Ever since the launch of Sportage, other assemblers have increased the prices at least twice; while Kia is absorbing the currency shock. Even Tucson within 24 hours of launch increased the price by Rs200,000. The cross-over of Kia may entice Yaris and City customers to convert to SUVs.
The company may not stop here. Since Lucky Motors is not married to Kia, it can launch cars of other brands. This gives the company wide range of choices in SUVs. It is in talks with 2-3 European manufacturers and may launch one European SUV by June 2021. The next step could be to move to EVs.
The good thing about the Lucky Motors strategy is that they are changing the rules of the auto game in Pakistan. Traditionally, Japanese auto assemblers have remained conservative. The control in decision making has remained tilted towards Japanese partners. They remained content in the sedan market. Lucky Motors is apparently investing into market development in a sector which is generally perceived as rent seeking.