Early 2017, when the success of the auto policy was still an open-ended question, guesstimate made by BR Research was that by 2022, Pakistan’s car market could see growth from the current 200,000 units to 500,000 units, not counting the increase in the market for commercial vehicles or new ventures in that segment (read “Playing your cars right”, March 20, 2017). Later, in an interview with BR Research, Indus Motor CEO put the same number out for 2023 (read Ali Asghar’s interview, Jan 22, 2018). Now estimates made by Elixir Securities suggest Pakistan’s passenger cars manufacturing capacity would go up to 443,000 units by 2022, pretty close to our own estimates of the market in the next four years.
Nearly ten new car ventures, whether in greenfield or brownfield are entering the market. Many of the prospective plans have been realized—ground breaking ceremonies for Lucky-Kia and Nishat-Hyundai (read “Hyundai in Pakistan-again”, Dec 20, 2017) were held to kick start their greenfield plants while brownfield approval made for Ghandhara Nissan saw the revival of its assembly plant to produce Nissan’s Datsun passenger car (read “Nissan: Second time’s the charm”, April 4, 2018). Lucky-Kia is officially out on the roads now, so to speak, with the launch of Grand Carnival, an 11-seater multipurpose vehicle (MPV) of 3300cc.
It isn’t surprising that the first car introduced in the country is not a small car. Much time has been spent lamenting that in a growing economy like Pakistan where the middle class is expanding and evidently, car purchasing has become relatively affordable, no new entrant identified small-engine compact cars as their target vehicles. In fact, most skirted around the subject. But there is a reason why the locally assembled Wagon-R (manual) is the fastest growing car right now, continuing its growth despite a recent 6 percent price hike.
Suzuki has actually been the biggest beneficiary of growing auto demand—having grown its market share to now 58 percent (FY17: 53%). All of its small car variants have out-performed the market, simply because the incremental demand is coming in these categories of cars. Another proxy for the demand of small cars is the import of used cars which is around 60,000-70,000 units annually, mostly in the small-engine car segment with popular variants like Daihatsu Mira and Move, Nissan Dayz, Highway Star and Pixix, Suzuki Wagon-R (automatic) and Alto etc.
On the other hand, the MPV and adjacent segments in Pakistan have been growing. Toyota’s SUV Fortuner has seen a fast incline while Honda’s crossover SUV, BR-V has seen a dramatic jump in sales since it was introduced first end of 2016 as a locally assembled vehicle. These big, less suave vehicles are popular in some of the most developed economies as they are spacious enough for growing families while powerful (and save) enough for off-road travels. However small the market in Pakistan for that would be, it exists and is growing.
Based on market intelligence, BR Research earlier estimated that the share of higher engine category may grow with the arrival of new entrants. While that can neither be confirmed nor denied just yet, two things should be pointed out. One, that we must not underestimate the high-end market. Own-money markets in the auto industry, however much of a nuisance it is, has picked up fundamentally because automakers cannot keep up with the demand for these cars; and are unable to deliver cars on time. That demonstrates growth prospects in the category.
On the other hand, if as many as ten new car companies are entering the space, not all can find space in the high-engine segment. Even if they do, cars will have to be a lot more affordable if they are targeting middle-income groups as well. For that, companies will have to localize well, and fast. Right now, the locally assembly SUV segment is mostly made of imported content which automatically takes up the price a few notches up. Financing will have to be a lot easier for the everyday consumer. Most of all, automakers must try to capture the depth and vibrancy of the market and embrace the diverse demand that exists for motor vehicles. That indeed would be exciting to watch.
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