Latest Large-Scale Manufacturing (LSM) numbers spin a positive tale of recovery for industrial growth in Pakistan; of which the automotive industry stands tall, out in the front. According to the association’s accounting, the cumulative sales during the nine months are up 37 percent—45 percent including Kia sales. This is the low base taking effect (read “Still in comfort zone?”, Apr 15, 2021) from last year’s reduced demand brought on by a combination of mandated mobility restrictions due to covid-19 and the economic slump that had already set in toward the end of FY19. The resulting FY21 numbers hence seem encouraging compared to last year; though still fairly behind if compared to two years ago.
However, a number of new patterns are emerging that will set the tone for the future. A handful of new assemblers including Kia and Hyundai have squeezed into the tight automotive space (the estimated current market size is between 200,000-300,000). While the overall market may not have expanded, new players are finding their place. Kia for instance is making upward of 2,000 vehicles every month while Hyundai is making 600-800 units. New pickups such as D-Max and JAC are also selling a monthly average of 100 units between them. A host of new models have been introduced by Changan (Karvaan, Alsvin), United Motors (United Bravo), Regal Automobiles (Prince Pearl, Glory Pro SUV) and Al-Haj (Proton Saga).
Both Kia and Hyundai are launching new vehicles after the positive reception of their existing models. Kia has launched crossover SUV Sorento while Hyundai is launching Elantra at the higher end of engine size. Kia has been strategically trying to capture more segments of the market and expand in each—from the mid-engine hatchback with Picanto to Sportage that sits in the middle, all the way to the very high-end SUV segment with Sorento and the Grand Carnival van—nearly all the bases are covered.
Secondly, despite last year’s crash and fall, the existing automakers are making money and will continue to make profits going forward. Both Indus Motors and Honda have recently made solid profits. After launching its Yaris in the midst of the covid-19 outbreak, Indus Motors doubled its profits in 1HFY21 despite Corolla sales being taken over by the new inferior model.
OEMs believe new players will not be giving them a run for their money given most new models are part of the SUV and crossover segments while Honda/Toyota (mostly) sell sedans. Strictly in volumetric terms, the new vehicles have barely scratched the surface. It will take them much longer to steal some market share from existing established players. For starters, they would need to maintain and hone capacity and skilled/trained labor force to assemble a large number of these vehicles (that also satisfy standards of their principals abroad). Except for Kia, which claims a capacity of 50,000 units and has been matching and even surpassing Honda’s sales on a month-on-month basis, most new plants are young and are still finding their footing. Many are facing problems in acquiring trained and skilled labor force to get the factories running full-speed. It will take them time.
However, the other major trend that is seen across the world and is seen emerging in Pakistan as well is the acceptability and increased curiosity for SUVs and crossovers. Not only is the on-and off-road drive capabilities attractive, these vehicles also bring more space and seating (great for large families). If they were to be priced closer to the sedans in the market, the sedan to SUV transition may take on sooner, given new assemblers can tackle their production and supply chain issues. With a number of Chinese brands vying to bring feature-heavy, affordably-priced SUVs in the market, existing OEMs may have to rethink their earlier assertion.
On the lower end of the market, Suzuki has been slow to recuperate but is on the mend— in its last quarterly financials ending Dec-20, the company made a profit of Rs1.5 billion after making losses for eight consecutive quarters before. Despite launching a worthy replacement for Mehran, Alto’s volumes have not matched its predecessor after the initial excitement. But Suzuki has been most hurt by the pandemic and the general economic downturn. Being the only vehicle assembler catering to the middle-class, Suzuki’s individual buyers tend to be more cautious and more sensitive to income and price changes. The company is also facing some supply issues in getting its parts from abroad. With borrowing rates now trailing their lowest, Suzuki’s demand may resurface soon enough.
Evidently, instead of very fast massive changes, small changes are happening within the industry slowly which could potentially bring positive outcomes in the market. Customers shall have more options, and if they were to take a leap of faith and buy the new Chinese offerings, they will also enjoy more affordability. They should not however expect price reductions and/or discounts for current Japanese models being assembled in the market. The industry is sadly not at that level of competition yet.