The automotive market for FY21 has expanded by 62 percent (passenger cars, LCVs and SUVs) compared to last year, though volumes are still behind FY19. The improved volumes have undeniably come on the back of new players venturing into automobile manufacturing as well as cheaper financing coming into play (read more: “Auto loans: Getting on the fast lane”, July 2, 2021). But aside from Toyota’s Yaris, no new launches were made by old OEMs. Amongst new players, Kia is the undisputable star performer with possible bragging rights to a shrewd marketing strategy, coupled with exceptional customer experiences included after-sales services.
At 202,000 units sold during the year, the total volumes may be slightly underestimated as it does not include volumetric sales of several Chinese players that are assembling vehicles since the auto policy 2016 offered them incentives to enter the auto manufacturing space. Most notably, these include Changan that collaborated with Master Motors, and Dongfeng Sokon that paired with Regal Automobiles to bring a variety of models to the Pakistani market, of which several SUV or cross-over options (read their interviews here and here) are more affordable—closely priced to sedans than imported or existing SUVs—loaded with customer and drive-friendly features.
But in all fairness, the market size—even if the new players are included—would not exceed 250,000. In fact, the only time the market went above 250K in recent history was in FY18 which was a sweet time for car makers and car buyers alike. The one demarcation then from the norm appears to be a pronounced tilt of new players toward SUV/crossover category. More players are coming including Chery China to be launched with guys at Ghandhara, and Peugeot that has signed an agreement with Lucky Motors. Rickshaw manufacturer Sazgar has also signed deals with BAIC and Haval.
That is not to say that the sedan category will stand behind. The launch of Hyundai’s Elantra and Sonata, Changan’s Alsvin, the soon to launch Kia’s Cerato are all new vehicles with growing demand. Perhaps, the most underwhelming segment remains the small car category which new players have more or less ignored (due to their low margins) and in cases such as Prince Pearl or United Bravo have almost failed to create any significant waves. If Suzuki serves as an example, given that it is the only small car maker in the country, there is also the factor of price sensitivity. Consumers are more likely to delay or postpone car purchasing decision if prices move up amongst small cars than big cars. The incremental difference matters much more to middle class buyers. Kia however took the idea anyway and went with it, and it’s Picanto is a major success, despite a price bump.
The future may be looking toward feature-heavy cross-overs but the market cannot expand with that category alone especially if there is a diversion happening from sedan to SUVs. Moreover, the market will truly grow in size if there are more vehicles in the small or compact category—that is where the true volumes are which is evidenced by the phenomenal sales of Wagon-R, Alto (and in the past, Alto’s formidable predecessor Mehran).
With the upcoming Auto Policy, the tax reductions (FED and GST) are higher for smaller cars (less than 1000cc) compared to others, apparently to make these cars more affordable. However, the incentive structure itself does not motivate new players to make that plunge toward launching cars for the “affordable” segment. There are other problems with the policy (read more: “Autos: Turning the page?”, July 15, 2021) as well which has been curated carefully by policymakers keeping in mind its likely consequences and while it may be good-natured could go either way.
Consumers that were waiting last month for companies to reduce prices (due to the tax cuts) will now begin booking again. Some might wait for the subsidy on auto financing before they spend their wallets but the most immediate outcome of government’s recent policies would be (human) traffic at the showroom! Auto companies are certainly winning. Are consumers winning, more on that next time.