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FY22 is not panning out very well for the automotive industry. This was anticipated early on as overall inflation, reduced purchasing power, higher borrowing costs on top of car prices shooting up were all expected to contribute in the substantial slowing down of demand. Resulting volumes for passenger cars, SUVs, and LCVs in 2MFY23 have dropped 50 percent year on year at some 23,000 units in two months. During August, the drop in volumes has also come with the share of passenger cars in total sales plunging to 77 percent with SUVs and LCVs taking up a larger share in the pie at 23 percent with a huge push coming from sales of Hyundai Tucson.

Amongst the three Japanese players, Suzuki witnessed the biggest decline at 61 percent where Cultus, Bolan and Wagon-R all shrinking by 80 percent on average. Indus Motors too saw volumes shrink by half. Unfortunately, Toyota has stopped publishing volumes for its models separately. Month on month, there was an improvement in sales during August but cumulatively, the growth was not too pronounced. Meanwhile, Honda’s volumes dropped 22 percent. The challenges are not only demand-based owing to the price hikes and substantially higher cost of borrowing. There are significant ongoing supply side hurdles.

The SBP had imposed restrictions in attaining LCs for the import of CKDs which included vehicles. Assemblers were facing arbitrary quotas which necessitated most to half production for days at end as they did not have the required kits to keep assembling (read: “Autos: Not here to make friends”, Jul 4, 2022). Such import controls also drove down volumes as there are simply not enough vehicles available. Without these supply side obstacles easing, it is difficult to say how much of the volumetric decline is due to demand slowdown. Once the OEMs are operating at capacity; factors such as prices, cost of borrowing and overall consumer sentiment on spending vs saving would come into play.

In the coming months, there is likely to be another price hike due to higher cost of production primarily brought forth by currency depreciation. The floods will certainly slowdown demand in the rural areas for SUVs and LCVs like Fortuner and Hilux. Meanwhile, interest rates are prohibitive and may keep customers hoping to attain financing for their vehicles presently at bay.

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