Last month in Oct-22, the automobile industry was selling an average of 11,000 units per month in the course of the four months during FY23; down from an average 22,000 units in the same period last year. In Nov-22 however, sales for passenger cars, LCVs and SUVs stood at roughly 18,000. This may indicate improvement but most challenges facing industry sales—from the supply and demand side—have not curtailed. The increase however only drives home the point that if assemblers are willing and able to sell, there will always be buyers in the market ready to unload inventories; rain or shine.
All factors point toward an expected reduction in demand. Finance costs have ballooned, incomes have not kept up with skyrocketing inflation, and amongst the many other industries raising prices, auto assemblers have not lagged behind. The industry is nothing if not consistent. The recent floods would have dampened cash-based rural demand, or so goes the theory. However, it is becoming clear that the reduction in sales has thus far come primarily due to government-imposed restrictions on imported completely knocked-down CKD) kits. A shortage of input stocks translates to lower production. According to the data reported by the Pakistan Bureau of Statistics (PBS), CBU imports are down 65 percent and CKD imports are down 35 percent in the Jul-Nov 22 period compared to the same period last year.
If supply restrictions had eased, volumes may have persevered. Delivery times are surpassing six months for many models and customers are still hesitant to ask for a refund. With few saving avenues available at their disposal, consumers tend to use cars and properties (particularly plots) as saving instruments. More often than not, they are also trying to avoid the impending price hike in the vehicle of their choice, which is nearly inevitable as prices are very strongly pegged to the rupee-dollar parity due to the industry’s overreliance on imported inputs. Whenever the rupee depreciates, car makers raise prices. It’s a story as old as time. On top of that, CBU imports have almost disappeared from the market while the government had already earlier imposed heavy restrictions on used car imports that were arriving unofficially in the country through the overseas’ Pakistanbaggage scheme. This ensures that consumers have to opt for either a second-hand car or a locally assembled new one.
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