Dearer cars

Not only have car prices increased; the supply is becoming dearer too. The demand curtailment has yet to be seen; however, the supply is being managed informally by the SBP. Same is the case for mobile phones. The SBP and MoF informally decided last month to maintain a quota of auto manufacturers and mobile phones and have a monthly allowance to import 50 percent of their average monthly imports during Jan-April 2022. That had happened in July. And industry is not yet clear about how things will move in August.

Almost all the automobile assemblers are operating at fraction of their capacity. Some who have better inventories are doing better than others. The industry leader in cars (Toyota – Indus Motors) operated for eight days in July and the plant would be shut again by July end. And could start production again by mid-August, provided, they would get the shipment for 5-6 thousand units which is stuck at the port cleared. Kia is going to be on a single shift from August, as they still have some inventory left. The situation of others is not much different. And by the time the supply gets better, demand would be choked due to the increase in pricing and economic slowdown. That is perhaps the game plan of economic managers to manage the imports till the demand is not subsided on its own.

The coming year is going to be very tough for automakers. Consumers will be suffering. Some players like Indus Motors are now offering consumers get back their money with full interest or pay the new (to be announced) price. They are not even able to meet the commitments for consumers who have paid in full. Consumers are agitated. Company is frustrated. SBP is out of options. The reality is biting them all.

On the other hand, Kia has managed to supply the consumers at promised prices. They have recently increased the prices for new booking and providing cars for old bookings at the prices these were booked. Kia was able to manage this because they had crippled units waiting for Electronic Control Units (ECU). Last year due to COVID’s supply chain snags, chips were short and Korean car assemblers were finding it hard to procure the chips. They used to make crippled units (without ECUs) and were supplying as they used to get ECUs. At that time, Japanese were the champions, as the ECUs supply of Toyota and other Japanese were well managed. They were supplying on time and committed price, while others (like Kia) had to change prices for booked units. Now the lady luck is against Toyota, and they are facing the music.

The industry is operating, at around half capacity, and situation may not change much in coming months. Consumer prices will increase further and that too significantly due to currency depreciation and global inflation. Not good times ahead for the industry.

The situation of phone industry is not different. According to industry sources, the quota for assemblers is not the same. Some assemblers are allowed to import higher than 50 percent while others at a lower rate. The production is roughly at half (or less) capacity. Consumers would find it hard to buy new phones.

There would be loss of direct and indirect employment working in the car and phone supply chains. Smartphone assemblers are quicker to fire while OEMs are not. Let’s see how long they can operate on full employment with half the capacity.

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