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Automakers have been raising prices as if cars were chicken, probably hoping it would not hurt genuine demand as if wishes were horses. The fact is, cars are not chicken and wishes are not horses. While it is true that demand in the Pakistani market is not as sensitive to prices as it may be in other more evolved economies where market size is large, volumes in abundance, demand meet-able and substitutes aplenty; at some point, the elasticity had to give in. That point is here with some exceptions.

Of course, the exceptions being the phenomenal and consistent growth of Pakistan Suzuki’s Cultus and Wagon-R as the fiscal year comes to a close. Both models are still all the rage, now known—like their imported peer Daihatsu Mira—as the unofficial “Careem-Uber” car. These cars have sustained sales month after month even as the company raised prices by 40 percent and 49 percent since Dec-17 respectively, because they have been bought increasingly by consumers to be used in the burgeoning ride sharing economy.

Higher prices, greater cost of financing, and reduced disposal incomes are not deterrent enough for Cultus and Wagon-R buyers. They are probably also still selling because of falling disposal incomes, rather than inspite of them. It is possible that more consumers are looking to supplement their incomes as inflationary pressures come to bite.

But the three aforementioned reasons are evidently enough to deter buyers of other models, including Honda vehicles which are now experiencing a steady drop in sales. So much so that Honda is shutting down its plant—reportedly—for 10 days as it tries to sell off 2000 vehicles lying in inventory. Oh, how the times have changed. Only a year ago, demand was so robust, car delivery was late by 6-8 months and these very vehicles were being sold on steep premiums ranging from a low point of Rs150,000 to upwards of Rs600,000.

On the one hand, the premium market, or “own money” buying showed the sheer appetite of car buyers and the persistent demand for these vehicles. On the other, it showed consumers’ ability to absorb these premiums. Which is why, toward the start of FY19, even as the rest of the economy started to cool down—in the automobile sector alone, commercial vehicles sales started to decline, tractor volumes slid—car demand remained strong. And it did even as rupee experienced its free fall, and each depreciation cycle caused automakers to raise prices. Inflation meanwhile resulted in monetary policy tightening until auto loans became far too expensive for new borrowers to come in.

Today the monetary policy committee will mull over the inflation numbers and will likely raise interest rate by 100-150 bps. This essentially says goodbye to any potential new car buyers looking for finance, if they weren’t already suitably discouraged. That leaves cash buyers and savers who might not want to part with the savings just yet. Indeed, higher income and indirect taxes plus inflation make a bitter concoction that only the rich may be able to swallow. And clearly, if Honda is shutting down its plant for a few days, with Indus Motors potentially following suit, it seems like even the affluent car buyers are going to wait out the storm.

Copyright Business Recorder, 2019

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