Auto sales are at their decade-low as the fiscal year comes to a wrap. The year has been bleaker than predicted in the start as the unforeseen covid-19 pandemic severed any chances for a recovery from the slowdown the industry was already heavily in the midst of. The economy was in doldrums, consumption was down, inflationary pressures were high and purchasing power had shrunk. Car financing was also expensive. Recall that the automakers had kept their plants shut for days due to piling inventories and a pronounced reduction in demand; though said reduction was not deterrent enough for automakers to keep prices stable. Then covid-19 hit- like a pile of bricks.
During the fiscal year, Indus Motors launched Toyota Yaris for its customers knee deep into the virus outbreak. One can only speculate whether it was poor marketing decision to launch a brand-new model or not, but the response on the new model was mum as even the most whetted of appetites could not be seen racing to the dealerships as cities went into lockdown. Perhaps the model would garner a positive outcome now as lockdowns have been relaxed and life goes back to a restrained normal.
Cumulative sales for Toyota dropped 57 percent for FY20 against the corresponding last year. Honda reported a higher decline at 63 percent during the year while Suzuki, being the so-called affordable car maker with its popular new Alto reported a 49 percent drop in sales.
Car prices during the period rose significantly as well with automakers citing rupee depreciation. With the market-based exchange rate regime in order, automakers should revisit their business models with car prices still so closely tied to the exchange rate. How frequently should they be raising prices should be a concern if demand and market shares have to be maintained. Uncertainty in prices is not a good way to keep customers coming back. In fact, evidence suggests that customers make decisions on purchase not only based on current prices and their preferences but also future prices.
Even though used car imports are currently blocked and customers have precious few choices available in the market, new entrants have a solid chance to carve out their path. A younger generation of car buyers is likely to be forward-looking and less dogged about “Japanese” brands with an established footprint. New buyers are likely to be more flexible and may easily switch to a fresh new model given the right motivation. This should factor into the OEMs’ decisions to frequent and unending price increases.
As Pakistan leaves the wreck of covid-19 behind—surprisingly sooner than anyone had predicted—and hopefully, no second wave or new strain of the virus will re-hit the country, overall demand may start improving over the next six months. Cost of bank financing is significantly coming down and overall inflation is also under control. Though incomes have been hurt across the economy--of which the already poor were more adversely affected—consumption within the mid-high- and high-income groups is likely to recover faster which serves well for the currently limited automotive market.
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