Ever wondered why Pakistani assemblers won’t make small cars? Over the years, we have posed this question to Pakistani automobile assemblers—new and old alike—many times and received a variety of answers, most of which skirt around the truth, without ever truly owning it. The answer is, it doesn’t make them enough money. It is no surprise then that every new assembler that has entered the Pakistani market since Suzuki a little over three decades ago has come up with another SUV option. Or as so astutely put by Kia, “new categories” in the SUV segment. The logic some present is that Pakistan must follow the global market. Presumably, this Pakistan must do blindly as if the sprawling cities of the country need more road-choking, fuel-guzzling vehicles on the road for a select few. Evidently, it has nothing to do with global market trends.

Perhaps, Pakistanis too one day will transition from sedans and hatchbacks to SUVs, but that day is not today. The truth is, assemblers are not targeting volumes when they launch a large engine. Globally, assemblers and manufacturers make more money off of big cars that are virtual profit fatteners. Small cars have to work harder. Much harder, and have to be priced just right.

Let’s look at Suzuki. The company sells quintessential middle-class cars, from the once-loved Mehran to now the hot-selling Alto. Suzuki continues to dominate the market in terms of volumes. Annually, the share has remained above 50 percent if we consider data for the past 15 years. That’s undoubtedly major leagues but despite having little to no competition from peers (though one can argue none of the three Japanese players compete with each other), and dominating the volumetric game, Suzuki just doesn’t make enough money (see graph). In fact, despite making double, triple, sometimes more volumes every quarter compared to Indus Motors and Honda Atlas, Suzuki’s profit margins are consistently lower, and earnings are consistently lower.

Consider the price of Alto vs. the price of Fortuner today. In the price of one Fortuner, a car buyer can buy 7 Altos (and some parts). Alto, by the way, is not a cheap vehicle by any means, and the assembler has raised prices for the car several times over the past year. But coming back to the multiple 7. This is really just a volume multiple. In FY23, Indus Motors sold about 12,266 LCVs and SUVs that were locally assembled. Unfortunately, the company stopped publishing individual numbers for Fortuner and Hilux so we assume that 35 percent of this was Fortuner units (historically, the company has sold more Hilux than Fortuner). If one were to apply the multiple of 7 to Fortuner sales, we find that in the place of all Fortuners sold in Pakistan during FY23—which are about 4291 units—consumers could buy 30,000 Altos. During the year, Suzuki sold about 35,000 Altos. What does this mean?

Indus Motors makes about the same money selling 4,000 units of its vehicle compared to what Suzuki makes selling 30,000 units of Alto. Another shocking way to look at this would be: Alto, which occupies about 28 percent of the market today makes roughly the same money that Indus Motors makes off of a vehicle that occupies about 3 percent of the market. Mind you, this is the year when the industry was in a massive slump and volumes had plummeted by over 50 percent while prices were up by roughly 51-58 percent.

Surely, the Pakistani population is thirsty for cars, in a very clear absence of a public transport system and a dilapidated road infrastructure that is suitable only for four wheelers. Despite that, a very small share of households can afford any car in Pakistan because they are too steeply-priced. Earlier, we estimated 12 percent of households own some form of passenger vehicle (new or second-hand) based on the number of total cars on Pakistani roads, but this should be a smaller share given that affluent households don’t own just one vehicle. Smaller still are then the households that can afford bigger engines. Yet, we have more models with bigger engines than ever before priced steeper than ever before.

Pakistani OEMs often argue that there is not enough localization in the industry because there aren’t enough volumes for models that are introduced. The natural answer would be: make more models that will fetch you the volumes. But that’s not the best utilization of their resources, is it?