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Coronavirus
LOW Source: covid.gov.pk
Pakistan Deaths
28,344
1624hr
Pakistan Cases
1,267,393
56724hr
1.45% positivity
Sindh
466,945
Punjab
438,636
Balochistan
33,159
Islamabad
106,615
KPK
177,240

Pakistan Suzuki (PSX: PSMC) is introducing the much-anticipated Alto-660 soon after discontinuing its most sold model Suzuki Mehran that had a good 3-decade run. Over the years, despite becoming notorious for being the cheapest quality vehicle in the market, Mehran kept selling without showing any signs of waning (read: “An ode to Mehran”, Aug 8, 2018), becoming almost a gateway car for consumers. Its biggest selling point being its end user price which no locally assembled car, or used imported car could match. Despite the near-monopoly in the small engine segment, Suzuki had no choice but to stop production—the CKD kits for Mehran were no longer being produced around the world. In came Alto.

https://www.brecorder.com/2018/08/06/432377/an-ode-to-mehran/

On the upside, Alto is a popular model and its original Japanese version is frequently imported by consumers. Meanwhile, there are many small and medium sized auto parts makers which were entirely catering to Mehran’s assembly who were scared they would lose business post-Mehran and are now being moved to the production of Alto. On the downside, it is unlikely that the new Alto’s price would be closer to Mehran. Folks believe the model would be priced between Rs800,000 to a million rupees but it is more likely that it will be closer to the price of Wagon-R, than Mehran.

With the depreciating rupee, automakers have been raising prices every few months without batting an eyelid (read: “Stuck on a one-way road”, April 3, 2019). Though Mehran is over 90 percent localized, Suzuki raised prices for the car by nearly 20 percent in the past 15 months citing rupee devaluation. If Alto-660 is so far about 50 percent localized, which is a market estimate, would the price tag be really as close to Mehran as believed?

Or would the auto giant price it lower only to catch market share? In Sept, United Auto launched 800cc United Bravo in competition with Mehran priced at Rs895,000. When Alto is launched, there will be cars that will be at a better price point. The model comes with modern features including power steering, keyless entry, alloy wheels, touch screen, central locking, and power windows. Some of these features are not even present in Wagon-R. But United is fighting a perception battle—it is a Chinese car, and a less popular one at that; the parent company Dahe isn’t a huge car manufacture in China like FAW or Changen. Moreover, its dealer and after sales network is not as wide and it does not have as strong a spare parts market. User reviews also suggest that the built of the car is low quality.

Though, one could argue that if car buyers were going for Mehran based on its price, they could go for Bravo against Alto just based on its lower price tag; it would be fanciful. Suzuki has a name in the market which United cannot build in a year. Meanwhile, Suzuki has other vehicles in the fleet which cost Rs400-500,000 more like Cultus or Wagon-R that are continuing their growth streak despite multiple price hikes. In FY18, Suzuki sold over 45,000 units in FY18. At the time, Wagon-R sales were over 29,000 units. At the current rate of growth, Wagon-R sales will grow to 32,000 units by year end. It is priced right now (after price increase) at Rs1.34 million and, it is still selling.

Suzuki will likely and confidently price it closer to Wagon-R and still sell the vehicle. The only downside for upcoming cars is the cost of borrowing which together with price increases has a substantial impact on the monthly installment paid by the consumer (read: “How much is Rs10,000 worth?”, March 28, 2019). In fact, car financing has come down by 15 percent in 1H and is expected to continue downhill given the recent rise in policy rate. This is not an economy to buy on financing which leaves individual savings. Will consumers part with their savings right now when food and oil inflation is on the up? Only time, and sales numbers will tell.

Copyright Business Recorder, 2019

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