The end of 2024 marks a year that the automobile industry might prefer to forget and despite a positive growth pattern in terms of volumes, which could constitute a humble recovery, automobile companies are far from their target market size entering 2025. Only this time, there are more players in the game than ever before, so naturally the stakes are higher.
The slowdown in demand over the past two years is well-documented. Expensive cars are made even more unaffordable due to the rising cost of borrowing, reduced purchasing power, and SBP regulations to impose limits on automotive financing (read our detailed report on auto loans here). Those restrictions that came into effect toward the end of 2021, with the SBP doubling down later in 2022, are still in effect and they make car loans tougher on buyers. The policy rate meanwhile reached their peak rates at 22 percent where they stayed comfortably for a year. It is only recently on June 24 that the policy rate has begun to come down, though there are no insights into when/if the SBP would loosen its grip on the regulatory controls.
As far away as market dynamics are from FY22, to say they haven’t improved at all would be false. The rates have been reduced five times in quick successions, and net borrowing in auto loans even turned positive for two months. In 5M, volumes have also grown year on year. Passenger cars have rebounded by 50 percent, only to be overshadowed by LCVs and SUVs that together grew 55 percent. The clear winners here are the big car players (SUVs and LCVs combined) that are taking more space in the market with new models, and higher volumes. In FY25 thus far, they are taking up 24 percent of the pie compared to last year’s 23 percent, and an average of 14 percent in the 13 years prior to that (since FY11).
This is the big move. With Sazgar’s Haval and Hyundai’s multiple offerings in the category, along with a few that are not reported by the Pakistan Automotives Manufacturers’ Association), there are new players entering the winners’ circle, and they belong to high-end vehicles. A quick look at Sazgar’s earnings growth should give anyone pause. Between Dec-23 and Mar-24, the Rickshaw maker’s earnings climbed 4x. Now a major player in the SUV segment, Sazgar’s post-tax earnings have rapidly climbed since March. In Sep-24, the company made Rs4.2 billion in profits. Here’s the banger: that is uncomfortably closer to Indus Motors than the latter would like. Meanwhile, Honda is not even in the same league anymore.
Unfortunately, after delisting, we have no way to assess how Suzuki is doing in comparison, but it would not be unfair to assume that the company is still not doing too well. Recall that in its last recorded quarter (Dec-23), Suzuki incurred a post-tax loss of Rs4.2 billion even though the company continues to sell the highest volumes in the market. Alto alone contributes roughly 30 percent to the pie; 40 percent if only passenger cars are considered.
This tells two things. One, the automobile market is still very much accessible only to a small percentage of the population by its sheer size, and two, moving forward, that small market is the only market new (and old) automakers will want to tap. Why? Because that is where the money is at.
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