The situation for auto assemblers is exceedingly bleak as the market continues to contract and demand for new cars is muted. Production and sales of locally produced automobiles present a very dismal image.
Although October 2023 proved to be one of the worst months for sales in a single year, statistics from the Pakistan Automobile Manufacturers Association (PAMA) indicate that over the first four months of the current fiscal year, sales and production figures decreased by 44% and 53%, respectively. Furthermore, these numbers only represent half of the previously truncated numbers from the same time in FY23.
Additionally, local assemblers' CKD imports fell dangerously to just $23 million in October 2023 from $54 million in September 2023, a 58% month-over-month fall. It's the lowest in 45 months, which suggests that as long as the primary causes of the decrease remain, volumes will continue to drop sharply over the next few months.
A significant drop in demand for new cars has been caused by the staggering costs of locally assembled vehicles, strict auto financing requirements, and high-interest rates (which are currently at 22% compared to 7% a few years ago) that result in unaffordable monthly installments, high fuel prices, and the declining purchasing power of the general public as a result of worsening economic conditions.
The size of the car market has sufficiently shrunk compared to the previous two decades. Based on current trends, the industry's total sales for FY24 (PAMA member businesses) would be about 81,000 units, which is fewer than the average yearly sales of 174,000 units during the previous 20 years. If we include the sales of non-PAMA members like Changan, Kia, and DFSK, it can still surpass the 90k threshold. Even still, the car sector as a whole produces less than 100,000 vehicles annually, which is a very disheartening figure.
It's interesting to note that the market hit a record high in terms of volume just two years ago, in FY22, even surpassing the 300,000-unit threshold (including non-PAMA members) for the first time. It just helps to demonstrate how much has changed since then.
Even more intriguingly, local assemblers continue to make healthy profits, as seen by their financial records, even when output and sales figures are halved. Honda Atlas Cars' profit-after-tax for the second quarter (July–September) of its fiscal year 2023–24 was Rs 675.34 million, despite reduced sales.
The Toyota automobile assembler in Pakistan, Indus Motor Company (IMC), announced a profit of Rs 3.22 billion for the quarter that concluded on September 30, 2023. This is a startling 148% increase in earnings over the same time the previous year, which was Rs 1.3 billion. For the September 30, 2023, quarter, Pak Suzuki, which recently announced it was delisting from the Pakistan Stock Exchange (PSX), posted a profit after tax of Rs 3.8 billion.
Automobile manufacturers are releasing incredibly costly vehicles geared exclusively for the wealthy and upper class while the market continues to contract and the general public suffers from declining purchasing power. Hyundai-Nishat just unveiled the new Santa Fe hybrid, which retails for between PKR 1.3 crore and PKR 1.47 crore. In the first month of the vehicle's introduction, the firm was able to sell 175 of them. For comparison, the number of Suzuki Wagon R cars sold in the same month (October 2023) was 197.
IMC is also getting ready to introduce the Corolla Cross hybrid, which is probably going to cost more than Rs 1 crore. Furthermore, Sazgar's extremely successful experiment with pricey Haval SUVs is a prime illustration of how low volumes of pricey cars help enterprises but not the nation's auto sector.
Although the market will continue to contract and the volumes will continue to decline, the profit margins will not be impacted by the costly products. This also means that, although owners of pricey SUVs and luxury vehicles can withstand the damage, those who depend on selling affordable, mid-sized cars to the general public will soon be hurt as analysts project a further 14% drop in production and sales by June 2024, the end of FY23/24.