Cars on the cards

A 50 percent increase in volumes should have automobile assemblers writing self-congratulatory notes to themselves, especially after enduring two grueling summers in the midst of a prolonged economic slump, one that’s not entirely over. However, signals are certainly turning yellow on that front. In 4MFY25, the automobile volumes surged to 40K units; up from 27K units sold in passenger cars (30.6K), SUVs (7K), and LCVs (2.9K) during the same period in FY24.At the same time, however, the air is heavy with trepidation, and not just because of the smog.

The fact is, automotive assemblers’ struggles are far from over. Volumes are significantly below those of previous years, even as early as five years ago, but going back as far as 2009. Although automotive financing is showing signs of growth with falling interest rates, a full recovery may not happen until rates dip into the single digits—a scenario that is unlikely to occur soon. Current estimates suggest rates could fall to 12 percent by December 2025, which may not trigger a flurry of fresh loans (read: “Pump your brakes” Oct 23, 2024), especially because of SBP’s tighter regulations on car financing. Unless the Regulator loosens the noose on these regulations, car financing—and car sales—may not bounce back as 35-40 percent of new vehicles are typically financed through the banking channels.

However, in the months to come, the lower rates may benefit smaller vehicles such as Suzuki’s Alto and Every and reach the middle class. “Every” with its reasonable pricing and versatile usage, whether as a school van, or a family car, or as a transport vehicle to load, unload and transport goods may see volumes boom for Suzuki. Other models may not experience quite the same fervor in demand.

In the past year or so, companies have struggled greatly with import restrictions and inventory gaps forcing many to keep the factories shut down due to non-production. This dramatically affected sales. While volumes have recovered following the easing of those restrictions, other economic challenges persist including the rising cost of living and erosion of purchasing power. Cars are not on the cards for many households as they make peace with their existing vehicles or relent to two-wheelers.

On the other hand, while motorcycles are growing in volumes (now higher than the two previous years), the real successes are coming from the money-makers—the SUV and LCV segments—where new models have cast quite the spell. Sazgar’s Haval and Hyundai’s Porter and Santa Fe have raked in the volumes when others have fallen back in their importance.

As assemblers grapple with the new demand dynamics though, the upcoming electric vehicle policy—in its curious ambition—may send some heads rolling, and not just because of its lofty goals but because of what its implementation would mean for traditional assemblers, new and old alike. It won’t be good. More on that policy next time.