Globally, the automotive industry is experiencing a swift transformation, one that had already started setting its roots; spearheaded by leading automotive companies but which has now picked up heavily as the threat of the coronavirus engulfed the global economy. Two words: digital dealerships. From star automobile manufacturers like Mercedes-Benz to Audi to Fiat and Nissan to used cars, online dealerships are now running parallel to the traditional car selling model. Is that a direction for domestic automakers to take?
In Jul-20, volumetric sales seem to have recovered considerably. Both Indus Motors and Honda Atlas Cars saw a growth of 68 percent (60%) and 46 percent (23%) in Jul-20 year-on-year (month-on-month) which seems to be a massive improvement from last year when the economy was in doldrums and from previous month when covid-19 was peaking and lockdowns were in full swing.
Suzuki’s demand however has not picked up fast enough—year on year drop during Jul-20 stood at 40 percent. Alto’s sales have been slashed by half while both the popular Cultus and Wagon-R are not finding buyers. Given these are cars in the more “affordable” category, considerably for the middle-class segment, it does support the thesis that changes in prices and incomes will affect their demand more i.e. these incomes groups are more sensitive to price and income changes, both of which have taken a hit recently.
Against all odds though, all automakers together with new entrants like Kia and Hyundai are selling cars. But there is nothing profound here. At the current pace, sales by the end of the year for cars will stand somewhere between 120,000-150,000 or may even cross the 200,000 mark which is nothing to write home about.
That’s also because the game plan seems to be the same. There are no aggressive moves. Car manufacturers are moving forward in a lull. Neither the economic slowdown, nor changing fundamentals nor the coronavirus has pushed manufacturers to think differently or push to sell more. Selling more apparently is not an agenda.
It seems like automakers in Pakistan are not ready (or willing) to tackle large volumes and to really grow in size. They are happy with the incremental growth in sales where they earn good margins. But without substantial volumes across models, there are few avenues to localize (invest in) important, technical parts that are currently expensive to import. This in turn means OEMs will continue to depend on the shifty exchange rate, and raise prices whenever rupee depreciates. This is a failing model as evidenced by FY20 sales. Consumers can absorb only so much price hike.
The consumer is certainly changing. They want choice, variety and they want it quick. More people (in Pakistan) have moved online to buy everything from clothes and groceries to expensive electronics, tech gadgets and appliances, many opting for contactless delivery. Cars ought to be next. Globally, the legacy of on-site car sales is being overtaken slowly by digital sales, and this trend will sustain because, it is simply too easy.
The move to digital will reduce information gaps, increase accessibility for all consumers to a variety of new, used, and imported cars (limited in physical dealerships) and raise convenience for consumers who can conduct research, price and spec comparisons, choose payment and finance plans and subsequently order online all the while staying at home. This will certainly reduce traditional Japanese car sales because consumers will simply have more choices.
With the likes of CarFirst, PakWheels and other forums offering different services have already picked up, it is only a matter of time that digital car economy also begins to take shape in the country. Only the existing automakers will not be the forerunners; they will follow suite. If this were a game of chess, automakers are playing a lazy move.
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