On March 5th, Indus Motors- maker of Toyota cars in Pakistan- announced it will once again be keeping its production plant closed for six days due to low inventory levels and a shortage of parts and components. This has happened countless times in the past two years. Later, on March 14th, the company announced it will be reducing the prices of its Yaris lineup between Rs73,000 to Rs133,000. Sounds like more than just supply-side challenges, one would think. And one would be correct.
Toyota’s price decline was followed closely by Honda reducing prices of its City. These price drops will potentially protect these cars from the higher sales tax levied by the government. In doing so, demand may persevere. Just.
The demand distress is visible across the board, for nearly all models and all segments of the industry. In 8MFY24, total volumetric sales shrank 40 percent, with passenger cars sliding 41 percent. Corolla and Yaris together sold 38 percent less compared to FY23, down 68 percent compared to 8MFY22—volumes then were triple of what they are now. At this rate, the industry would sell less than 100,000 units in the entire year, for the first time since 2009. That was 15 years ago.
Record high-interest rates have pinched volumes from the segment that used to buy vehicles on bank borrowing. With interest charges prohibitively high, car buyers have had to move to cash. And only a very small percentage of the population has that kind of cash lying around.
Hefty car payments are likely not on the agenda of many a citizen grappling with unwavering inflation, and reduced purchasing power. Together with sky-high car prices, and the rising taxes on them, the environment is not conducive for an expansion in the market pie. Couple that with supply chain challenges, and we have ourselves the biggest decline in market size in history, considering that capacities are much higher now than at any time before.
With sales tax raised by the government, this is not the only time for policymakers to attempt to curtail automobile demand. Earlier, the SBP tightened regulations on car financing by slapping restrictions on tenors and equity requirements. Together with high cost of borrowing, possible borrowers would have to contend with tougher regulations. This does not paint an optimistic outlook for the industry over the next few months. Some carmakers may still be making money—by the skin of their teeth, mind you—but this trickles into the next fiscal year, and those profits could easily turn crimson.
Comments
Comments are closed.