Auto: Hiding in plain sight

If there ever was a doubt that there is significant latent demand for cars in Pakistan, March of this fiscal year alone could satisfy that curiosity. Volumes during the month jumped 66 percent compared to the previous month which at times like these should be astounding. Nearly all players have performed under capacity over the past several months because they did not have the required materials to keep plants running. Import restrictions had tied their hands in the back. But a slight redressal in LCs was able to boost volumes during the month. Despite mind you, much more expensive cars, high cost of borrowing, and other inflationary products specially fuel. Even so, the cumulative volumes paint a sombre picture, with 9M volumes down 46 percent standing at roughly 110,000 units, lowest since FY14, and beating FY20 only slightly. The average sale units this year has fallen to 10,500 units per month compared to some 23,000 units during the period last year—that’s a decline of 54 percent. Month on month, the industry’s performance has befallen tough times, and continuously nearly all car makers have announced subsequent and prolonged plant shut downs. During March, Honda had its plant shut for 23 days. On April 1, the company extended the shutdown for another 15 days till April 15. Indus Motors and Suzuki had similar lower operational days over the past months. At first the restrictions were set by the SBP, and later, banks were asked to prioritize import. Car inputs and CKDs did not make the cut.

Two things are certain: one, there is ample appetite for cars in the market even when most would expect car buyers to take a step back and wait for simpler times, and two, supply will not ease as quickly as one would hope. For the former, it would seem car buyers are expecting prices to only go up and at the same time, expecting cars to be a solid store of value for the future. Arguably, whether that is true or not, perception is everything, which will continue to drive demand as long as supply exists. Those flush with cash may pick their car of choice—and wait for months waiting for delivery—and those feeling the heat of reduced purchasing power may move down a model or two. To put it all in perspective, car prices have gone up35 percent or more in a matter of months.