Predictably, car demand has plummeted as we kick of FY20. Auto makers had been raising prices every few months citing rupee depreciation and their vulnerability to it as their dependence on imported kits only grew with the introduction of new models (read: “Autos: For whom the bell tolls”, May 27, 2019; “How much is Rs10,000 worth?, Mar 28, 2019). Is their decision to raise prices so much weighing heavy on them? How they proceed now will tell.
Overall, passenger car sales dropped by 41 percent in 2MFY20 against the corresponding period last year. A lot of it could be attributed to Mehran being phased out and Bolan which is typically used as a commercial vehicle in the market. When trade, commerce and retail activities decline, people buy these vehicles less (evidently, the same has happened to pickups, and heavy commercial vehicles).
Honda seems to have been most affected with its market share dropping to 22 percent from 24 percent. The company had also shut down its plant for 10 days following reduced demand. Customer favourite Toyota Corolla which happens to be the most sold locally assembled car in the country is not the most sold car anymore. That medal now goes to the novice Suzuki Alto.
Interestingly, Suzuki sold more Altos in the past two months then it sold Mehran and Bolan combined this period last year. Alto is a small much celebrated middle income car but it is not by any measure cheap. It seems Suzuki’s marketing efforts and booking starting at Rs50,000 yielded desired results.
Other factors working against demand is the high cost of borrowing as SBP ramped up its efforts to control inflation and as a result, tightening monetary policy. Cars being bought on financing have dramatically curtailed. Higher tax burdens and inflationary pressures have also put a dampener on disposable incomes across the board.
The monetary policy committee decided to keep the status quo on the policy rate and will see where the dust settles in the next few months, and accordingly adjust the rate. But for the foreseeable six months at least, car buyers cannot rely on cheap financing to buy their vehicles. Meanwhile, cash buyers will mull over their decisions depending on inflation and their depleting purchasing power.
In the meanwhile, Kia has just launched Picanto and has ramped up marketing for Sportage, hoping to catch a slice of a fast shrinking pie. For that we say good luck. Kia will need it.