Passenger car demand, and not particularly in the higher end market either which roughly translates to Honda and Toyota vehicles, is persevering against all odds. Economy downturn be damned! Though it comes with a healthy helping of overturned past policies (no restriction on non-filers to buy vehicles of any kind, now official for all cars), and despite up to 20 percent increases in prices of different variants. Even Suzuki vehicles, which are supposedly for the quintessential middle class, have grown with solid numbers for Cultus and Wagon-R. But there is a segment of the automotive industry that is suffering, and some are now arguing will continue to suffer. In a grand twist, that would be commercial vehicles, the one segment that was going to absorb much of the CPEC related boom.

In fact, analysts at the Fitch Solutions have downgraded their forecasts. They argue in a recent report that the automotive sector’s over reliance on Chinese investment and the now slowdown in these investments would significantly and adversely impact overall auto sectors sales, particularly commercial vehicles. While the removal of restrictions on non-filers would fare well for passenger cars, the same cannot be said for heavy commercial vehicles. Already in 7MFY19, pickup sales have fallen by 9 percent, and truck sales have fallen by nearly 30 percent year on year (read more: “Autos’ silver linings”, Feb 18, 2019) according to Pakistan Automotive Manufacturers’ Association (PAMA).

In 7MFY19, FDI coming into the country, as per the latest data from the Central Bank show that net inflows came down 17.6 percent, and from China, down 28 percent. The so-called CPEC boom is now well into its reversal. Fitch forecasts that heavy commercial vehicles sales will reduce by 18 percent. The report also argues that the removal of restriction on non-filers will only provide a temporary buffer and this slowdown will eventually hit the passenger car segment as well.

Though, current numbers belie this analysis, it is not difficult to see why the agency came up with this assessment of future demand. As the economy cools down, consumers tend to delay major purchasing decisions. If they are buying on cash, it is doubly difficult, but even if they opt for auto lending, the current lending rate with tighter monetary policy makes it simply more expensive. This will hit Suzuki buyers first; and may eventually catch up with Toyota and Honda buyers.