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Car prices are painstakingly high, but demand’s responsiveness to exorbitant pricing of even the most basics of locally assembled vehicle has been rather slow. One would expect demand to drop if prices increase, say an average of 30 percent—which is the most recent and arguably the biggest price hike the car market has witnessed following a number of smaller price increases earlier—but demand is thus far persevering. Mind you, auto financing is also more expensive as interest rates have swiftly gone up.

In 10MFY22, locally assembled vehicles increased 50 percent, comfortably crossing the 200,000-mark at roughly 227,000 units, and there are already two months to end of the year. In April, sales went down 18 percent month-on-month but certainly not year-on-year. Compared to last year, April-22 when prices are sky-high and economic stability is hanging by the thread, consumers bought 30 percent more cars than they did in April last year.

The unlikely winner is Suzuki that is selling both Alto, Cultus and Swift have performed exceptionally, cumulatively growing sales by 64 percent in 10MFY22. This is certainly a win for Suzuki as it had been struggling for quite a while amid dealing with semi-conductor chip shortages. Honda’s new variants for city and civic boosted the company’s growth, combined sales up 36 percent in 10M.

Automakers cite high depreciation of rupee, sky-touching freight rates and inflationary commodity prices in the global markets necessitating the substantial increase in prices. Consumers, it seems, are absorbing these prices and either have urgent vehicle needs, lined up savings, or expectations that cars will become even more expensive in the coming future as global inflation puts nerve-pinching pressure on goods and services. Because of the prohibitive cost of borrowing at 14-15 percent interest rates offered by banks, consumers are likely to be paying in cash. Others, less urgent car buyers would delay purchasing decisions hoping for economic climate to improve. Rural buying may be a major driver.

Another set of consumers may move down a model, forgoing their first choice of vehicle because of their budget constraints, and opting for a lower model, or even a vehicle offered by one of the Chinese players. This may be the time for Chinese players to ramp up their marketing, though they too have been raising prices with the Japanese lot. The curious increase in Suzuki sales—the quintessential middle-class vehicle assembler—should certainly raise eyebrows and perhaps may be indicative of the “moving down” phenomenon. The other consideration here is vehicles becoming an asset class of their own. Vehicle prices in the second-hand market have been increasing in tandem with new vehicles making them a better investment than many other investment options out there.

For the most part though, despite the slow response of demand to the multitude of factors that should be pushing it down, the next few months does not bode well for the industry as it wraps up the fiscal year. But even then, the year would end with a solid 250,000-260,000 unit of sales—up more than 50%—in the locally assembled market, and that does not look like a weak year for the industry by any standards.

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F Nawaz May 15, 2022 02:44pm
The second hand market is just bonkers. Would rather go for new.
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