In the days leading up to December, which will mark the end of the calendar year and six months to the fiscal year FY23,the automobile industry will witness the full wrath of an economic downturn in the form of perfectly squashed demand. Just a glance at the graph would show locally assembled volumes across the sector, for nearly all segments in passenger cars, LCVs and SUVs, are significantly down, even lower than levels during Covid (safe for that one month in Apr-20). Imports of CKD now suggests upcoming months may be at a greater risk of hitting fresh lows.

By mid of November, companies like Industry Motors would have kept their plant closed down for business for longer than 60 non-consecutive days since the fiscal year began. By its own admission, the existing level of inventory of manufactured vehicles coupled with part shortages necessitated the plant closures. Demand is low. With very steep cost of borrowing, a major proportion of car buyers had already decided to adopt the wait it out strategy. Others still flush with reasonable amounts of cash however had to contend with long delivery times. Even the SUV segment that had shown resilience as new models entered the market (such as Hyundai Tucson) now

Diminishing CKD imports—in Oct-23 standing at $23 million, its lowest in 45 months—indicate there will be a continued and marked decline in volumes over the next few months as dominant causes for the decline persist. High inflation and costly cars coupled with bank rates on car financing will keep many buyers either at home twiddling their thumbs or on the lookout for a good deal on an imported used vehicle or a locally run second-hand car. Others may trade out their larger vehicles for smaller more fuel-efficient ones as petrol prices come to bite. Import restrictions may take care of the rest.

The car market as it stands today has sufficiently shrunk to its two-decade old size. At the current pace, the industry would sell about 81,000 units in FY24, below the 20-year average annual sale number of 174,000 units. That’s only for locally assembled vehicles (not including KIA and Changan sales). How much has the market size even evolved? Only two years ago, in FY22, the market hit its all-time high volumetrically, even crossing the 300,000-unit mark for the first time (including KIA sales). This was a feat and many thought this was a new achievement unlocked. What would be interesting however is if we could gauge and compare first-time car buyers from then and now. That would set a standard for ascertaining the true car penetration in the country. Given wide income disparities and knowing that the existing car market continues to stay beyond the means of an average Pakistani household, perhaps the only difference between today and FY22 is that car buyer that does not want to cough up cash for some extra wheels, without significant motivation in place.