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The automobile industry ended the fiscal year FY22 at the highest volumetric numbers yet amid massive inflation and shrinking purchasing power. Total sales during the year grew over 50 percent for passenger vehicles, LCVs and SUVs (not including sales of assemblers outside the automotive association such as Changan or Kia). A rough estimate of total industry volumes including non-PAMA members would bring the total industry size at close to 350,000 units. While this may be a new benchmark for market size, the upcoming year has its work cut out for itself.

For one, automotive assemblers have been postponing vehicle bookings for weeks on end as rapidly depreciating rupee and rising freight rates have caused costs to catapult and their upward trajectory is not conducive to meeting market demand. Meanwhile current vehicle deliveries have been adversely affected by SBP’s restriction in attaining approval for LCs (read: “Autos: Not here to make friends”, Jul 4, 2022) which is running companies into trouble in terms of meeting car delivery times for orders already booked.

The fast-depreciating rupee meanwhile has already pushed some companies to announce new prices (Kia and Hyundai have announced price hikes) but others are soon to follow having made little headways in localization and as a result, heavily importing from abroad in precious dollars which are becoming expensive. Kia has also announced a new booking policy in which some models are on hold for booking and others require customers to make full payments. Dependence on imported inputs greatly undermine the industry’s growth potential in the upcoming year as it directly impacts end-user prices—assemblers are quick to raise prices as rupee weakens. But this does and will impact volumes. Demand within the automobile industry may not respond immediately to price increases but there is certainly a delayed affect, particularly in smaller car segments. Luxury and SUV segments may persevere for a while and may be able to absorb the price hikes as car buyers have the capacity to pay premiums on these vehicles, especially those car buyers paying in cash. Significantly high cost of borrowing due to rising interest rates, meanwhile, will shrink organic demand in these and smaller car segments.

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