Automotive volumes expectedly plunged over 50 percent in Jul-22 compared to the same month of last year, recording roughly the same sales numbers as the time the country was in the midst of tackling the covid outbreak two years ago. This time, production cuts, overall inflation poking holes in consumers’ pockets and significant increase in vehicles prices have resulted in total volumes dropping to some 12,000 units (including passenger cars, SUVs, and LCVs) as reported by the industry’s official data.
Assemblers are experiencing a critical shortage of inputs as SBP imposed restrictions in attaining approvals for LCs of CKD imports including vehicle CKDs LCs (read: “Autos: Not here to make friends”, Jul 4, 2022). Such delays or denial in imports or quota-based allowances has choked the supply chain pushing assemblers to cut down on production to single-shifts or observe complete non-production days. Most assemblers, if not all, foresee delays in the deliveries of existing booking vehicles. Indus Motors also suggested it might refund the customers for their bookings if the delivery is too late. Meanwhile, some models for assemblers are on-hold for booking until import restrictions lift or become clearer. These are models where localization is minimal.
On the demand side, too frequent price increases due to currency depreciation and cost-push inflation has made cars a little too expensive, even for those who could afford a few hundred thousand rupees they would pay in premiums or “own” to market investors. The car price has to justify its usability, drive, and eventual resale. At current prevailing prices—not to mention the high cost of borrowing—it seems the market would want to wait till prices come down before they can buy again. Improvement in rupee against the dollar should bring prices down but it does not seem that assemblers are racing to do that. For one, there is too much volatility for assemblers to make a decision on price. Meanwhile, the import situation has not eased either which is curbing production. Cooling down in demand and consumption is certainly a goal of the government at the moment and from the looks of it, the automotive industry, down by 58 percent month on month and 52 percent year on year, is delivering on it.
. 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.