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Since Jan-18, car prices increase in almost all the models of three Japanese players is higher than the PKR depreciation against USD and in some cases, price increase is more than depreciation against Japanese Yen. The inflation in Pakistan is lower than the currency depreciation. This would imply the localized parts price increase should have been less; and the car prices increase should have been less than currency movement; but that is not happening.

This trend tells us that localization is extremely low in the country, and even in the parts where localization exists, most of the raw material is being imported for it. These Japanese assemblers are in the business for around 30 years and have done some good job in terms of localization. Yet there is still a long way to go. All the market was lacking competition which is now coming. Yet there are traces of some collusion – trends are suggesting it; but nothing can be said with certainty.

Almost all the new and old entrants are part of PAMA (Pakistan Automotive Manufacturing Association), barring one –Lucky Motors. Interestingly, barring Kia cars all the other assemblers increased their prices with currency depreciation. In case of Kia Sportage, there is no change in prices since its launch (barring one variant where in early days, a discount was offered), and one time the prices of Picanto variants are increased in Sep-20 (up 3%). However, other assemblers have increased the prices 2-3 times since then.

The other issue is of the infamous ‘own’ – it’s much less on Kia cars relative to similar cars of competition. Is this a coincidence or there is something with PAMA members which we all don’t know? BR Research does not have this answer. Its best for CCP to probe into it. But one thing is clear that Lucky Motors strategy is different from the others and it’s not a member of the association.

Another thing clear from the data is that if one assembler is not increasing prices, the competitor follows that approach within that segment. For example, in the case of Suzuki, all the models that saw price increase is over 50 percent but for Cultus the price increase was 38 percent in the past two years. Less increase in Cultus prices is due to relatively stable price of Picanto since its launch. Suzuki knew that Cultus sales to fall if its prices is to be higher than competition.

In the case of Corolla and Civic, the price increase goes hand in hand. Had anyone of these limited the price increase, the other may have followed. But that is not the case. Here, some say that there might be an unsaid agreement of price increase amongst all. There is no evidence to support it, but logically the question is valid.

Another element to see is the price increase in tandem with currency depreciation. The currency during Jul-19 to Nov-20 moved between 154-168. After currency hit 164 in July-19, almost every player increased the prices once or twice; but when currency moved back to 154 by Feb-20, there was no reversal in prices. And again, when the currency depreciated to 168 in Aug-20, the prices increased again in between. Now the currency is appreciating again and there is no change. The currency may depreciate again after it would touch its low. Some say the assemblers may increase prices again. Is there any rationale to that one-way traffic?