Continued and persistent supply restrictions facing automobile assemblers importing vital raw materials in order to assemble vehicles in the country certainly—almost single-handedly –precipitated the plunge in volumes last year. In a quarterly comparison for the most recent financial statements announced by the three PSX-listed OEMs, in Jun-23, volumes plummeted 82 percent, 69 percent and 94 percent for Pakistan Suzuki, Indus Motors and Honda Atlas Cars year on year, respectively. Post-tax earnings stood at Rs3.2 billion, Rs 3.8 billion and Rs145 million for the three companies during the quarter; the latter two had paid a whopping 53 percent and 46 percent tax on income during the quarter. In fact, Indus Motors gave more in taxes to the government during the quarter (Jun-23), than it retained; the company also offered a solid dividend payout to its shareholders, while the other two companies decided they needed to hold onto cash.

For much of the year, nearly all these assemblers kept their plants closed down and as rupee depreciated, frequently, raised prices several times unperturbed by any potential slowdown in demand. To be fair, the fact that demand could slowdown has never truly deterred assemblers from raising prices over the years and any increase in costs or taxes have more or less been pushed toward the consumer. Like any good suspension on a reliable car, consumers have absorbed such shocks befittingly and fairly quickly. Demonstrably, there is a marked increase in estimated revenue per unit sold of each company for each quarter (see graph). The gap between Toyota, Honda and Suzuki pricing is also visibly widening—though all car makers have raised prices in a rather harmonious fashion. For instance, since Jun-22, price of Alto, Wagon-R and Cultus rose 51 percent, 55 percent, and 59 percent respectively, for Corolla and Yaris, it rose 51 percent, for Fortune, price went up 58 percent and for Honda Civic, City and BR-V, price increase averaged between 51 and 54 percent.

But it would seem the average Toyota car is much pricier than Honda, and significantly pricier than Suzuki. That’s not entirely wrong, but the widening gap seems to demonstrate another crucial finding here: while Suzuki is predominantly selling itscheapest vehicle (in terms of the price), Toyota is selling its most expensive variants—during FY23, the company’s sales mix stood at 39 percent sales for Fortuner and Hilux (IMVs) which was 24 percent the previous year and 18 percent the year before that (FY21). Meanwhile, Alto’s share in total Suzuki sales has grown to dominate at 54 percent (in FY23) compared to 47 percent last year. So, while Suzuki is selling Altos like hotcakes (compared to its other pricier vehicles), it is still not making enough money. In fact, the company was in losses during FY19 and FY20 and it was in losses for three out of four quarters in the past fiscal year (FY23).

The other side of the picture is Suzuki’s improving quarterly margins. Sufficiently raising prices has allowed the company to secure a better margin position than ever before. In the quarter Jun-23, margins stood at 10 percent. Meanwhile, Toyota’s margins for the same quarter stood at 4 percent as costs took a major bite out of the revenue it was earning. While Indus Motors’ house is in order—no finance cost burdens, trimmed down overheads—the company has to contend with rising costs and rupee depreciation.It recently halted production citing reduced demand and supply chain disruptions which is not a good omen for the coming year.

Profitable for now, the troubles for assemblers are only just startingand it’s not just automobile assemblers. Costly borrowing and reduced purchasing power is set to bring a fresh bout of volumetric downfall which might force small auto parts vendors to be chased out of business, leaving the rest to struggle with sparse business activities. The loser though, as always, remains the aspirationalcar buyer—who will have to wait just a bit longer yet to drive a four-wheeler in this country.