Passenger cars and auto assemblers no doubt are in an unenviable position. They are the biggest to get hit by the apparent economic recession, though they haven’t helped themselves too much by raising prices so much and so often that it would turn off the most committed (and able) of car buyers. Volumes, it seems, are not important. In total, not counting for Mehran that was discontinued by Pakistan Suzuki late last year and Alto that was only recently launched, automotive sales in passenger cars alone have dropped 61 percent in the first half of the FY20.
The motivation behind price increases are well-established. Rupee depreciation has caused cost of imported CKD kits and other inputs like steel to be more expensive. Overall inflation is also high which has brought up the overall cost of production. These are passed on to the consumers. The problem is of course two-fold: that buying power of consumers has already reduced due to higher taxes and inflationary pressures, on top of which are vehicles priced much higher than they were last year, while cost of borrowing is also high which is bad news for potential lease buyers (a lot of whom are Honda customers).
Monthly averages for all three auto assemblers have more than halved. Production has stalled so much that as inventories pile up, automakers are keeping plants closed to reduce overheads. What will it take for demand to recover anytime soon? A lot, but it has to start from perhaps assemblers looking inward for a change of strategy (read more: “Automotives: Hindsight is 2020”, Jan 3, 2020). Let’s not forget that new players are now entering the market which would—it is hoped—spur competition when economic climate improves and organic demand for cars recuperates (read more: “Auto: Lessons for new entrants”, Jan 8, 2020). Some of the players are the same, but the game is about to get substantially tough.
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