In 8MFY22, sales for locally assembled vehicles by the Pakistan Automotive Manufacturer’s Association (PAMA)-registered members suggest a growth of 57 percent year on year. But this is not a massive improvement given the industry was selling similar volumes in FY18 and FY19. The demand in the automobile industry at the moment in fact belies the confidence that policymakers were channelling when they designed the last auto development policy. It was all about volumes and choices. Arguably, that policy brought in a few new players into the mix, and hence choice to the market—most prominently Lucky’s partnership with Kia, and now Peugot, Nishat’s partnership with Hyundai and then a number of new ventures with Chinese and Malaysian-make models. Of the latter grouping, perhaps the only big assembler is Master Motor’s partnership with Chinese Changan that has seen more models in the fleet and more vehicles on the road. According to the CEO of Master Changan, the company with its Chinese vehicles is the number one volume selling new brand in the market right now.

Changan estimates the CY22 number for volumes would reach 373,500 units, growing by 20 percent, with demand growing substantially in the SUV category. That is where most new automobile assemblers are headed believing a marked transition would take place between sedan and SUV if more categories (size and price points) are introduced. But overall market expansion depends on a number of factors. Due to higher cost of production, inflationary pressures and depreciation currency—all of which are issues rooted into the industry’s heavy dependence on imported content, both kits and parts—vehicles are becoming more expensive than ever before. Car financing was enabled by lower interest rates in the last year but that share will now get eroded as interest rates go up and borrowing becomes more expensive. Thus far, Suzuki vehicles have performed well because of the ban on car financing for imported CBUs which shifted financing demand toward smaller cars. Used cars (dominated by small engines) coming into bulk in previous years were also slightly curbed through policy measures that took away some of the competition Suzuki faced. However, for upcoming quarters, it will come down to the purchasing power of small car buyers.

Worth noting here too that none of the new players want to bring smaller cars into the market. Most BR Research conversations with auto assemblers begin almost identically with auto executives claiming that Pakistan is following the global trend of growing SUV share. Some have argued that there aren’t any small cars in the global market that could be assembled here. Debatable, but let’s talk about affordability then. Nobody wants to talk about who will be able to afford the giant SUVs gaining ground? Given how volumes have almost remained stagnant between FY18 to FY21, it does seem that new and old players alike are happy with the volumes they are getting because if they were in fact, serious about car penetration, they would think about purchasing power of the average potential car buyer.

Meanwhile, Changan’s Danial Malik points out that a big customer segment for SUVs is rural areas where families are large and cars are bought on cash. This will be the money maker for the SUV segment. For traditional sedans, this may smell trouble. As the price gap closes between SUVs and sedans, customers will opt for the former. There are also new, more affordable options available in the sedan market now such as Alsvin, even though the car does not have the kind of built-in reputation that the likes of Honda and Toyota vehicles have. There is also no established resale value for Alsvin which may deter car buyers from taking the leap of faith. However, Changan has an established after-sales network which it has been using to its advantage to get more footfalls in strategic areas and evidently, by their own admission, is performing very well in terms of sales. Meanwhile, the SBP has changed prudential regulations for bigger cars and taxes on these cars are also higher. All this coupled with higher cost of borrowing would diminish demand in sedans for certain.

Competition is coming but perhaps not at the pace that was envisioned in the last policy. Market size, maybe not just yet. The proverbial target to achieve of 500,000 units within the automobile industry continues to remain a dream. And other mega dreams—such as greater localization, more affordable cars, and more car penetration with access to middle-class income groups—seem almost entirely out of reach with the way things currently stand.