Auto: taking flight

There you have it, folks. The auto sector wraps up this fiscal year with the kindling of hope that the next few years will bring a lot more to the table, even if this year was a bit of a letdown. The locally assemblers’ sales as per the Pakistan Automotive Manufacturers Association (PAMA) for cars, jeeps, pick-ups, and LCVs saw a 7 percent annual growth in FY17 locking in at 276,740 units. Much of this growth comes from phenomenal performance of tractors and commercial vehicles against this time last year while, passenger cars and jeeps grew in tandem with a long yawn—tepid for relentless optimists but pretty good, as stand-alone.

The biggest carmaker in the country, Pakistan Suzuki Motor Company (PSX: PSMC) showed a slowdown (down by 11% in FY17) only because of the Punjab Rozgar Scheme that saw an additional increase in sales last year. Without Bolan and Ravi sales, PSMC sales grew by 13 percent in FY17.

The company has been in the news for several reasons: the launch of the new Cultus which despite a steeper price has shown a rally. Post-launch sales have been much higher, but it is likely that this would die down in the coming months as Wagon-R is proving to be the new favourite in the company’s fleet. The former favourite Alto last sold over 15,000 units in FY12 after which the company stopped making it. Wagon-R kicked off in FY14 with 1,600 units. In FY17, sales for Wagon-R stand at over 17,000 units. The likeability of this car will grow further given its appeal to urban families who otherwise seek used imported Toyota Vitz or Diahtsu cars.

PSMC will also see a sharp increase again coming fiscal due to the revival of Punjab government’s Orange Cab scheme with 50,000 units spread across Mehran, Bolan and Wagon-R variants. (Read our detailed story on the scheme: “Orange Optics”). The company is also importing other variants to gauge market appetite like compact Ciaz and SUV Vitara. Alto 660 is still on the cards despite PSMC temporarily shelving its investment plans of $460 million in a new plant after not receiving concessions under the auto policy.

Indus Motor Company (INDU) on the other hand, despite showing a fall in sales in its flagship variant Corolla announced an expansion of $40 million to increased capacity to 75,000 units. The company’s Hilux-Revo and Fortuner are doing incredibly well despite Corolla facing competition from new Honda Civic and similar cars imported in the segment.

In our last column, we called 2017 the year of Honda, and it is clear why. The company has seen its market share jump from 12 percent to 18 percent from FY16; has sold more cars than ever before, introduced newer variants as well as an SUV, Honda-BRV, which is proving to be a strong contender in the segment. The new City is in the works too.

However, it remains to be seen whether Honda can keep climbing. It would be interesting to see the dynamics of the car industry once the new players enter the playing field come FY18. The likes of Renault, Kia and Hyundai are all vying to capture the illusive high-engine market space where already Toyota and Honda are operating. The competition in the segment will be fierce while PSMC will even glide through given its niche in the smaller segment car market. INDU and Honda better be prepared to battle it out. (Read our story: “Playing your cars right: an update”)

Having said that, existing carmakers have a leg up in terms of localization, an already established dealers’ network, and parts market across the country as well as secured vendors who have been working with them for years. All three of them are racing to launch more products and upgrade old models to make space for new. They are even prepared to make new investments so it won’t be very easy to root them out, but pinching their market shares as they stand today will be relatively easy. There is no underestimating the demand for more variety, better quality and fancier brand names. When Renault and Audi come calling, who wouldn’t want to answer?