Pakistan Suzuki (PSX: PSMC) cannot catch a break. Substantially reduced demand, and higher input costs due to depreciation despite several price increases on the way, the company has recorded yet another loss-making quarter. In the 1HCY20, Suzuki is in a gross loss with the net loss growing by 61 percent since the corresponding period last year.

As a car maker for the proverbial affordable segment, Suzuki has faced a sharp depletion of demand—and coronavirus only exacerbating the existing circumstances with lockdowns and plant closures. In fact, demand started to drop after Mar-19 and continued its downward slide until it hit new lows as covid-19 situation started to unfold.

The automobile industry started depicting signs of economic slowdown as 2019 rolled in. Purchasing power had reduced, and it became harder for consumers to spend more on the same cars with reduced disposable incomes and high inflation. Car financing had also become expensive as interest rates kept high. Decisions were also being delayed with some consumers waiting for new Korean cars that were expecting launch.

Wagon-R and Cultus sales were for the past year driven by the rise of on-demand riding apps but where demand soon started to slow down as the excitement dissipated and cars become more expensive. For high-income car buyers, absorption of price hikes is still more possible but for car buyers hoping to stay under Rs2 million, price hikes were more a bargain.

During 1HCY20, car and LCV sales fell 68 percent for Suzuki year on year. One could associate some of this impact to covid-19 but seeing pre-corona monthly numbers, sales dropped by 67 percent 2MCY20 (Jan-20 and Feb-20) against the previous period last year. The damage had already been done. Revenues on the other hand dropped 58 percent. While price increases shielded the margins, that was not enough.

Revenue per unit sold (estimated; since it does not include motorcycles) grew 33 percent against a 36 percent increase in costs per unit sold. The negative margin was inevitable. Overheads as a share of sales also grew 31 percent (1HCY20: 6%; 1HCY19: 4.4%). Finance costs meanwhile ballooned—now trailing at 7 percent of revenues against 1 percent in 1HCY19. Tough.

Now sales for Swift, Alto and Wagon-R have already recovered in July from Mar-20 with Alto leading the pack. This will be the trend going forward where Bolan and Ravi will follow suit. Potential Cultus buyer may move to Wagon-R or Alto as the more affordable options and the model may proof to be the weakest link. Without pre-2019 level sales, the company’s fortunes may not return as cost of production will remain high. Even though Suzuki has brand presence on its side, there are plenty more fish in the sea that is joining in. The only reprieve is that there are few launches in the affordable niche segment Suzuki has made its mark in and used cars incoming are currently on hold. There is hope.