Despite launching a brand new small car—Suzuki Alto—which garnered a lot of interest from car buyers, Pakistan Suzuki (PSX: PSMC) did not wrap up its calendar year on a high note (in fact, it incurred a loss) and has started this year continuing its losing streak—the loss itself at par with that of the corresponding period. It’s not so much as COVID-19 hitting the company where it hurts, but the turning fates of the entire economy that had been pushed headfirst into austerity. When purchasing powers reduced, car buyers stopped rushing to the showrooms.
Now with coronavirus being hurled at the country full-speed, car buying may further deteriorate. During the quarter, Suzuki saw its volumes shrink 63 percent. Though Mehran’s volumes have comfortably shifted to Alto, cumulatively, Suzuki cars have found demand wanting as the company raised prices several times citing rupee depreciation and leasing costs due to higher interest rates also rose.
The company’s most notable sales have been witnessed in Suzuki Wagon-R since its launch but which has taken a considerable nosedive during the quarter. Though it is priced closer to Alto, it appears that the latter has cannibalized some of that market share and overall demand for mid-income cars has come down.
The company was able to sustain its margins from last year by raising prices when required. Revenue per unit sold for the company has actually been up 38 percent so the decline in the top-line is entirely due to low volumes. Perhaps, the price hikes affected the demand but it seems a lot of other factors mentioned earlier caused demand to shrink organically.
The company’s loss of Rs941 million was a result of lower gross profits, a slight increase in overheads (5% of total revenue) and borrowing costs tripling during the quarter. With interest rates being lowered, finance costs may get a breather moving forward but this is not a time for car buying when consumers will be thinking about saving cash or spending on essentials.