Beyond the Bounds

“I was planning to book a Suzuki Alto, which is the smallest and cheapest available vehicle. But the dealers are not taking new bookings, as Pak Suzuki is set to increase prices by Rs200,000 on this 660cc vehicle. It costs Rs1.75 million and now it will be near Rs2 million. This has derailed my plans of owning a new vehicle,” he said.

There have been addition of 12 new entrants, as car manufacturers are bringing in around 15 brands and 25 new vehicles in the country. As far as the consumers are concerned, there are simply no good quality new cars available at lower price points, forcing them to buy used imported or older locally-manufactured models from the secondary market. The variants being introduced in the country by the new entrants have so far failed to fill in those gaps.

Wasil Zaman, an analyst at JS Global Capital, said that the rupee depreciation coupled with escalated freight rates have rapidly surged the cost of imports.

“The auto sales are anticipated to slow down during the second half of FY22, as the impact of higher taxes, rising interest rates, curbs on auto financing by the State Bank of Pakistan (SBP) and higher prices takes effect.”

Just to recall, due to a sharp increase in the international commodity prices and the rupee depreciation, investors were concerned over the earnings of the local auto assemblers, pushing the market capitalisation of these companies down 13 per cent so far in FY22.

According to the Pakistan Automobile Manufacturers Association (Pama), the automobile sales surged 46 per cent to clock-in at 216,000 units during the eight months of FY22 (July-February 2021/22).

The increased number of bottlenecks and delays in the auto supply chains are also helping the suppliers push through price hikes, as the end producers are willing to pay premiums to ensure supply.

At the same time, higher global commodity prices, notably for oil, energy and metals, is also pushing up the auto production costs.

Muhammad Tahir at Pearl Securities anticipate the automobile industry sales to stabilise, as the consumers take expensive auto financing into consideration and unchanged policy rate by the State Bank of Pakistan.

“The prices might see an increase in case the exchange rate weakens further and elevated raw material and freight costs. Further, continued supply chain disruption will impact the production of the sector.”

However, the introduction of new models would continue to attract the customers’ attention. “Hence, we see moderate demand for the Pakistan automobile sector in the ongoing year, i.e., FY22,” Tahir said.

All Pakistan Automobile Dealers Association Chairman H M Shahzad said that the country’s automobile demand was around one million units, while all the local auto assemblers were producing around 0.4 million units. In addition, around 40,000 vehicles are imported every year.

“The local assemblers cannot meet the demand, not even with imported cars, since there are restrictions on imports.” Shahzad said.

“The local assemblers are completely dependent on imports, including completely knocked-down kits (CKD), semi knocked-down kits (SKD) and assemblies. Unless, there is close to 100 per cent indigenisation, cars will remain out of reach of most of the population.”

For Shahzad, the Japanese assemblers had agreed to the deletion programme, i.e., transfer of technology and local manufacturing. “However, they are still just assemblers, even the governments’ never forced them to increase the level of indigenisation.”

All the local assemblers were only focusing on the rich people, as their target market and there were no new smaller cars, i.e., domestic cars, he said. “And those limited available smaller cars deprive the buyers of the choice, while prices are equal to luxury cars.”

Shahzad proposed the government to review the policy on car imports and must allow import of cars up to five years old.

“We are not asking to reduce taxes, just allow up to five years old cars, which are far better in performance, fuel efficiency and safety, compared with the brand new cars assembled locally,” he added.

Imported cars will not only break the monopoly of the local assemblers, these would provide buyers with more choices and the government would earn higher revenue. Of the 28,000 different items imported in the country, a car is the only item, which brings duty and taxes in dollars from abroad.