Pricier cars becoming more uneconomical, mounting cost of borrowing at prevailing kibor rates close to 23 percent, coupled with government restrictions on automobile financing would have weakened demand in the automotive industry on its own. But the 55 percent drop in sales during FY23 has largely materialized due to import restrictions that led to a debilitating supply chain crisis.

Since May-22 when import restrictions were first announced by the SBP, assemblers like Pakistan Suzuki (PSX: PSMC) have closed down operations week after week in quick succession owing to depleting inventories of precious imported parts and CKDs. Till date, Suzuki has kept its motor vehicle plant shut down for over 70 days cumulatively.

Demonstrably, despite a more expensive dollar, CKD imports have plunged during the year, not far behind the drop in imports during Covid, sliding below imports during FY16.

In percentage terms, CKD kits in dollars have dropped 61 percent during FY23 (11M); 66 percent if CKDs for cars alone are considered, which reasonably translated to the drop in total volumes (for passenger cars, LCVs, and SUVs) of 55 percent.

Passenger cars recorded a higher decline of 59 percent. While this has caused much distress to assemblers (along with other industries facing similar issues), would demand-side indicator have bolstered volumes by much? Maybe selectively.

Rising near-prohibitive bank lending rates and SBP’s tightening of auto financing terms has left net auto financing in the doldrums, having turned red in the start of the fiscal year. Fewer loans (or no fresh loans?) are being doled out which given about 40 percent of cars are leased would have brought volumes down at least by that much.

With financing becoming difficult, it seems the vehicles sold during the year of roughly 130,000 units were mostly purchased on cash.

Despite expensive cars, limited stocks in the market, delivery delays, halted bookings, all the while consumers facing reduced purchasing power, there were still car buyers in the market that brought new cars during the year, at peak prices, likely on cash.

There is a possibility of folks trading down their models by selling off their bigger cars and buying a more fuel-efficient vehicle like the Alto as petrol prices rose. Even if that thesis were true, it hasn’t shored up overall volumes compared to last year’s base. Alto’s sales reduced by about 50 percent, Cultus’ and Wagon-R’s by 70 percent and 77 percent respectively during FY23. Swift saw volumes during the year climb 51 percent compared to last year mainly due to the launch of its third-generation model.

This lays in stark contrast with the volumes for SUVs which have become hot as cakes. New models in the market such as Sazgar’s Haval, Tucson by Hyundai, Chinese Chery’s Tigo have sold vehicles despite apparent odds. Honda’s BR-V, the cross-over SUV, has sustained volumes by selling only 5 percent less units this year compared to FY22.

Other players like Kia have performed incredibly in the segment. Last year, SUV’s share (adding Hilux sales numbers in it as Indus Motors has been publishing cumulative numbers for Fortuner and IMVs this year) was about 10 percent of total automobile sales. This has grown to 19 percent of total volumes in FY23; a massive jump given how bad the economy is. Car buyers are not shying away from bigger cars. More domestically assembled models, variety of options, and restrictions on CBU imports have together buoyed SUV volumes and it seems there is enough cash in the hands of car buyers to spend on steeply priced premium models even as the country oscillates between “about to default” and “will live to see another day”.

The IMF’s bail-out and relaxation in import restrictions will restore assemblers’ confidence but worries over elevated interest rates wiping out the demand that comes from bank financing will persist. Amid that, there will just be a few more bulky, fuel-guzzling SUVs on the roads, dominating limited road space and speeding through traffic; perhaps just a few more than most would prefer.