The headlines haven’t changed—automobile volumes are down (in FY23, volumes shrank by 55 percent for passenger cars, LCVs and SUVs), prices have shot up dramatically (on average, car prices rose between 51 percent to 59 percent for different models during the year), auto loan rates are prohibitively high for fresh borrowers and riskier yet for lenders to furnish, and L/C restrictions over the past year have forced assemblers to keep plants closed down as they found it more and more difficult to replenish their inventories. It’s hard to imagine then that volumes will ricochet back to their past glories. In recent history, FY22 would come to mind. But with L/C restrictions relaxing, assemblers will have to once again reckon with demand. Is there demand for new cars? Can car buyers absorb the costly vehicles they will find in the market?

To arrive at an answer to that, we estimated the CKD import per unit of local sale (in dollar terms) for the past five years. The exact statistic used here is under the head “CKD/SKD import of motorcars” extracted from Pakistan Bureau of Statistics (PBS)‘s monthly import data given in dollars. To make estimations slightly easier, it is assumed that each month’s CKD import is utilized toward the production and sale of next month’s locally assembled automobiles (that include passenger cars, LCVs, SUVs). On ground, this may or may not be the case and assemblers may hold inventory for longer to utilize for later months. Moreover, the volumetric numbers used here do not include all the cars assembled in the country and only those that publish their data with PAMA (mainly Toyota, Suzuki, Honda, Hyundai and a few others.

With those caveats out of the way, let’s look at how CKD per unit sale has changed. Visibly (see graph), month from month, this metric has swung up and down during the period, moving between $2000 (during FY19 and FY20) to as high as $10,000 in recent months. The average monthly CKD per unit sale between FY18 and FY23 shows for each unit of sale, the cost of CKD imported (in dollar terms) rose from $3623 to $6633—up 83 percent in the past five years. But for last year, the CKD per unit sale rose only 3 percent—that’s not a huge jump. Why did assemblers raise prices by roughly 54 percent across models? The answer, as is often the case, is rupee depreciation. In fact, the average rupee during FY23 depreciated by 40 percent. By converting the CKD per unit sale to PKR, the increase in CKD import per unit sale stands at 43 percent. Embedded in this 43 percent increase is the hike in dollar as well as the cost of rising input from source (CKDs). Evidently, assemblers have raised prices beyond the additional cost they have incurred on imports over the past year. Don’t forget, prices have risen 2x or even 3x within the span of a single year. Volumes could have fallen much more than they did, given also that cost of borrowing was mounting.

Perhaps, the more revealing fact here is that the average CKD per unit sale (in rupee value) during FY23 stood at Rs1.6 million (Rs16 lakhs), up from Rs1.1 million (Rs11 lakhs) last year (estimated for the purpose of this column using the datasets mentioned above). The cheapest car in the market is Alto-660 VX priced at Rs2.25 million. Perhaps, these are too watered-down calculations with a bunch of assumptions to boot, but based on the volume mix, and the prices attached to higher models, one can certainly question whether assemblers are inflating their prices just a smidgen more than they should?

Here’s the thing. Don’t be surprised when volumes sustain (or even increase) over the next few months. In fact, BR Research has argued that demand had little to do with falling volumes in the last year and could be explained away by the fact that assemblers could not import. The automobile industry in Pakistan has always remained beyond the reach of an average Pakistani household. Without purchasing power improving, there will only be a certain class of consumers buying new vehicles off of the money they have kept aside. Latent demand for vehicles has always been there, but there is also effective demand that will be realized when import restrictions ease.