RECONDITIONED CARS - THE PRESENT AND THE FUTURE

Wise decisions involve all relevant costs and evaluations...

MUNTAZIR HAIDER
Mar 19 - 25, 2007

THE 2005-06 SCENARIO

Around a year or so back, there were hardly five to six sub-brands of cars that one could find on the roads, with the most common ones being Alto, Mehran, Corolla, Civic, Baleno, Coure and City in general, however, the public sector officials held the Toyota and Suzuki sub-brands only. The scenario was fairly pleasant for the local car assemblers.

LOCAL CAR ASSEMBLERS

With Suzuki and Toyota leading the market share, a sort of joint monopoly was established in the country. The monopoly players were mainly Toyota and Honda, while Suzuki due to its well established and running item i.e. Mehran, held a strong position. The local car assemblers enjoyed a tremendous say in the market, with the marketplace totally being supply-driven and the customers nearly having no say whatsoever. The premium on cars were charged from the least of Rs.25,000 to the heights of Rs.1 lac plus, otherwise the delivery time varied from anything between 4-8 months or even beyond. There was not just premium being charged for early delivery but also some of the vendors were charging premium for even the booking of the car for routine delivery. The gains that the automobile manufacturers recorded during that time are possibly unbelievable.

PERFECT INVESTMENT SCENARIO

It was a perfect scenario for investment as investors booked the most running items (cars) and sold them on premium at the time of delivery. The most widely invested items included Mehran, Xli and 2.OD Corolla, Coure, etc.

PRE-IMPORT ALLOWANCE THOUGHTS

During those days, the customers and the showroom owners condemned the government policy for not allowing the import of reconditioned or used or even new cars, which could have proven to be a much needed relief for the customers from the monopolistic hands of the local car manufacturers. Government had its own policies that needed to be implemented. With issues such as globalization, etc. intruding in with great speed, it needed to ensure that the car industry, likewise the others, is ready to take up the challenges before WTO brings in foreign and cheaper brands from across the world. Therefore, it needed to protect the local industry in order to allow it to grow and expand to meet such challenges. Many thought that this was far away from reality as the car assemblers did not show any signs of improvement or expansion, rather enjoyed the massive economic profits that they were making over the years. All the prayers arose from the customers that may the monopoly be eliminated and the imported cars be allowed.

THE IMAGE OF IMPORTED CARS & THE REALITY

Firstly, it is important to note that there is a huge difference between used imported cars and reconditioned cars. Reconditioned cars are the ones that have been used and then revamped at the industry's manufacturing facility and sent to the market again. Many believe, with the author inclusive, that the reconditioned cars definitely beat the local assemblers in terms of quality; however, even the used cars are three times as better as the ones locally traded. For example, a 30,000 km driven car in Japan or the UK would be as good as a similar car driven locally for around 100,000+ km. The quality is a definite differential. This hasn't proved to be wrong for years, and the same is valid in the recent imported cars as well. In a recent incident that I had near Hasan Sqaure, the bumper of my car (Platz) touched the bumper of a City; the touch wasn't as gentle as it may sound in writing. To my surprise, the bumper of City actually lost its paint and had a dent for which I had to pay Rs.2,000, however, the bumper of Platz got a mere dent. Apart from this fact of quality, the drive of the cars is tremendously awesome, alongside their ability to have EFi CNG installed on them, the quality actually seems unmatchable.

POST-IMPORT ALLOWANCE THOUGHTS

The image hasn't changed much as mentioned in the previous section because of the performance as at times it has been far beyond the expectations. For example, if Vitz is driven with relative care, it easily gives a mileage of more than 12 km per liter. The word of mouth is actually what develops an image prior to the usage while it is the performance that determines whether the product is of the right quality or not, and then determines future course of action, inclusive of spreading further the word of mouth. After the allowance of imports, the imported cars (including both used and reconditioned) flourished the showrooms of Karachi, even the people having no knowledge of the cars and excess cash, got cars imported to sell and make profits. The most imported cars include Vitz and Mini Pajero. However, other cars such as Platz, Pajero Junior, Corolla, Mira, Terios Kid, Cami, etc were also brought in the market.

THE SPARE PARTS ISSUE

The equilibrium rule states that no merit comes alone; it has some drawbacks attached to it. One of the premier issues that definitely impact the choice of car to be purchased is cost of spare parts and this cost is carried over to high insurance premiums, inter-linked to the quicker depreciation. The spare parts, the genuine ones, are really expensive. A few months back, my brother had an accident in which the front left of his local Corolla was damaged; the damage included the door, side glass, pillar, etc. The net bill after insurance coverage came to around Rs.22,000, however, my Platz is still used with a broken back light because only the light (the genuine one) costs around Rs.17,000 - there are local versions available for less than 10% of that price but those turn pale in a short span of time. These are just the body parts, the engine parts are even more difficult to find and expensive to purchase. Following this costly parts, insurance companies are charging a higher premium for insuring the imported cars, and alongside, the depreciation charged per incident grows rapidly.

THE FUTURE - TAKING LESIONS FROM THE PAST

It is wisely said that each tomorrow is a mirror image of yesterday, and today is the mirror between the two. A couple of decades back, Charade and Charmant were imported and had the same spare parts issue, and their outcome is obvious today. Similar patterns can be drawn towards the re-sale value of the current imports. With the huge number of Vitz and other cars parked in a number of showrooms, people who want to sell it as a registered and locally used version have been burdened with increasing the value-added bundled equipment with the car e.g. radial tires, deck, alloy rims, and most common item, a CNG kit. In a nutshell, it is always better to rely on the local production and manufacturing facility. But the only problem lies in them realizing that the consumer has no option, and once that happens, premiums would start jumping.

PREVIOUS FISCAL YEAR: IMPORTS ANALYSIS

During 2005-06, the government had given us a policy under which there was no restriction on the import of old models, but in the current fiscal year the government has restricted the private importers only for five-year-old vehicles. In the said period, the dealers imported almost 70,000 to 75,000 used vehicles worth $1 billion, from which the government obtained huge revenue of Rs. 40 to 50 billion. Because of this import, the local assemblers and manufacturers faced competition and the black-marketing of the cars ended in 2005-06.

CURRENT FISCAL YEAR: IMPORTS ANALYSIS

During 2006-07, the import of used cars has shrunk from 1300 to 1500 per month because of the restriction on import of not more than five-year-old cars. There is a high probability that the import of used cars would cross 25,000 units this fiscal year.

DECIDING THE FATE OF AUTOMOBILE SECTOR

It is interesting to analyze that the local manufacturers and assemblers are not able to meet the growing demand. The federal government has recently approved a five-year auto policy for the local assemblers and manufacturers as well as for new foreign investors coming to Pakistan. Import policy also needs to be altered to fill the demand and supply gap, which is moving up annually by 22 to 25%. Therefore, similar to the imports of sugar and other commodities to fulfill the demand, the import of cars should be allowed - a ban on imports would lead to a similar situation that was in 2003-04 of delayed delivery and premium pricing.