Sep 24 - 30, 20

The automobile industry is one of the most vibrant as vehicles are produced domestically and likewise are imported to meet the ever growing demand for new models. Domestic assemblers for cars primarily includes Honda, Indus Motors and Suzuki whereas Dewan Motors, manufacturers of KIA has ceased operations with the impeding restructuring and debt crisis. In recent times, consumers have witnessed an exponential increase in the price of locally assembled cars which has opened up a new market for import of reconditioned or used cars available at a price at par or lower than domestically manufactured cars. With only three major players in the market including Honda, Toyota and Suzuki, consumers with locally assembled cars have a limited choice. On the other hand, automobile dealers are more than eager to import new vehicles to counter increase in the price of locally manufactured cars as well as give consumers a wider choice to choose the vehicle they intend to drive.

Considering the past performance, the country sold 157,325 locally assembled cars in FY12 compared to 127,944 cars in FY11 including those classified under 800cc and above. Though vehicles are being sold, auto financing by the banks has decreased. Based on the latest figures released by SBP, automobile advances were PKR 45.722 Billion in March 2012 as compared to PKR 53.670 billion as on March 2011 which shows that consumers are deterred through high price of vehicles being sold in the market coupled with high interest rates. Banks are also increasingly cautious with the lending whereas the infection ratio against auto advances was 10.5 percent as on March 2012.

Considering that automobile sales are increasing whereas bank financing is on a decline, more and more consumers are choosing to purchase their cars through savings and own sources rather than bank borrowings to avoid high interest rates coupled with insurance cost. The reduction in the Discount Rate by 150bps will give respite to existing consumers and may increase advances against auto financing going forward.

All Pakistan automotive Dealers Association (APMDA) and Pakistan Automotive Manufactures Association (PAMA) are the mainstream authorities on the Auto business in Pakistan. According to PAMA, local assemblers including Honda, Toyota and Pak Suzuki among the 1300cc and above segment have sold 9,492 from July 2012 to August 2012 cars compared 11,170 cars during the same period last year. Taking the arch rivals i.e. Toyota and Civic head to head, a total of 5,264 Corollas have been sold from July 2012 to August 2012 compared 707 Honda Civics during July 2012 to August 2012. Honda has stopped the production of Honda Civics (Reborn) for a new model already launched. Suzuki with the lowest price point and popular brands including, Cultus, Mehran, Bolan and Swift have held the highest market share in the industry. Mehran's are considered the most popular not only because of the price point but also for the fact that these vehicles are popular options to be driven as Taxi's, more recently the Punjab Taxi Scheme.

Production has also ended for both Suzuki Alto and Daihatsu Cuore and is expected that this void will be filled by Mehran. With Suzuki Alto phased out, it is yet to be seen if Pak Suzuki has plans to replace the car with another model or focus their attention on current brands, mainly marketing and sales of recently introduced Suzuki Swift. Of 18,250 cars sold from July 2012 to August 2012, 10,101 cars with a market share of 55% where sold by Suzuki. Taking into account the breakup of sales, 52 percent of all local assembled cars sold are 1300cc and above, 13 percent of the cars sold are 1000cc whereas 36 percent of the cars sold are between 800cc but less than 1,000cc. Despite the fact that fuel prices are on a rise and domestic price of cars have witnessed an upward revision year on year, cars under 1300cc are still the most popular purchase. Toyota Corolla holding the highest share in this segment is driven through purchase of vehicles by the government and car rental companies.

Considering the size of the population and the number of vehicles sold in the previous years, the demand for new vehicles is expected to grow expecting to reach domestic production of 200,000 vehicles by FY13. Reconditioned or used cars are gaining popularity primarily imported from Japan and other Far East countries. According to APMDA, a total of 4,950 cars were imported in July 2012 accounting for 32 brands. Most of the cars imported fall in the category of 1,000cc to 1,300cc which is a cause of concern for local manufactures who constantly push the government to increase duties and tariffs on imports to make them uncompetitive in the domestic market, hence hindering further imports.

With rise in international oil prices, small cars upto 1,300cc are expected to capture a wider market which will give local assemblers still competition. The government with the tariff and duty structure for car imports gains manifold with imports. The government is encouraged by local assemblers for import of cars falling in the category of 2,000cc and above keeping with the existing duty of 50 percent in replacement of cars falling between 800cc to less than 2,000cc with hope that higher engine vehicles with fetch a higher quantum of duties and taxes.

Local assemblers find themselves in a challenging environment to compete with imports on the basis of price and features offered. It is expected that cars sold at a price point below PKR 1 million will pose a threat for domestic assemblers in terms of competition. The country imported 54,000 cars in FY12 expected to increase to 80,000 cars almost 50% of the domestic demand by FY13. Car dealers are pushing the government to allow import up to 10 years old whereas auto assembles want the tenor to be reduced to 3 years.

The measures to be taken by the government are still uncertain as to what the car import policy might me going forward. Regardless what the decision maybe, consumers will find themselves in a win-win situation with a wider choice of cars waiting to be purchased.