Shift­ing Gears

Euro­pean and Korean auto brands could find a place in the Pak­istani mar­ket.

Southasia - - CONTENTS - By Muham­mad Omar Iftikhar

Soon af­ter in­de­pen­dence, roads in Pak­istan sported cars from the US and Europe, pri­mar­ily be­cause of their in­flu­ence over the sub- con­ti­nent dur­ing the pre- par­ti­tion days. How­ever, the au­to­mo­bile in­dus­try got a facelift in 1989- 90 when the In­dus Mo­tor Com­pany Lim­ited (IMC) was es­tab­lished. It was a joint ven­ture be­tween the House of Habib (HOH) and two Ja­panese com­pa­nies namely, Toy­ota Mo­tor Cor­po­ra­tion (TMC) and Toy­ota Tsusho Cor­po­ra­tion ( TTC). Since then, IMC’s flag­ship brand, Corolla, has been a mar­ket leader in Pak­istan along with Honda’s Civic and City. It is in­ter­est­ing to see that nearly five years af­ter the for­ma­tion of IMC, Honda – a joint ven­ture be­tween the Honda Mo­tor Com­pany Lim­ited and the At­las Group of Com­pa­nies, Pak­istan - de­liv­ered the first car from its assem­bly line in May 1994. This was another turn­ing point in Pak­istan’s au­to­mo­bile sec­tor when two Ja­panese au­to­mo­bile giants made their pres­ence felt, while IMC was the first to spread its wings in Pak­istan, and to date, en­joys the edge of be­com­ing the first to en­ter the mar­ket.

More­over, af­ter the 2013 gen­eral elec­tions, in­vestor con­fi­dence has surged in the coun­try’s au­to­mo­bile sec­tor, pri­mar­ily be­cause of the cur­rent gov­ern­ment’s busi­ness friendly ap­proach. Pak­istan’s au­to­mo­bile sec­tor, which is cur­rently worth nearly $ 232 bil­lion, is mov­ing to­wards an eco­nomic re­vival and is ex­pected to at­tract au­to­mo­bile com­pa­nies from Europe and Korea.

Ac­cord­ing to a re­port, nearly 39,000 au­to­mo­biles were im­ported in Pak­istan in fis­cal year 2015. The sales of lo­cally as­sem­bled cars also jumped over the years. In 2009, 82,844 cars were sold in Pak­istan while in 20142015 the num­ber reached 151,134. The first in the eco­nomic came in June 2015 when car man­u­fac­tur­ers de­clared that sales went up to 151,134 units in 2014-15 as com­pared to 118,102 in the pre­ced­ing year.

This is good news for Euro­pean and Korean au­to­mo­bile man­u­fac­tur­ers who can in­crease their cus­tomer base in Pak­istan. Although they are selling their ve­hi­cles in the coun­try, they do not have assem­bly plants akin to those of Toy­ota, Honda and Suzuki. As both Toy­ota and Honda regularly bring in in­no­va­tion in their de­signs and fea­tures, the Korean and Euro­pean au­to­mo­bile man­u­fac­tures will face tough com­pe­ti­tion if they de­cide to make an en­try. They would also need to tackle Suzuki’s mar­ket dom­i­nance which has been run­ning par­al­lel with that of IMC and Honda.

Ger­many’s Volk­swa­gen has re­cently showed in­ter­est in Pak­istan. Ac­cord­ing to the Pak­istan Board of In­vest­ment, Volk­swa­gen is not the only com­pany ex­press­ing in­ter­est. There are a num­ber of other com­pa­nies from ( South) Korea and Europe that are think­ing of set­ting up assem­bly plants in Pak­istan. It is ev­i­dent that Pak­istan will soon wit­ness an eco­nomic re­vival – and it would bring eco­nomic sta­bil­ity and for­eign in­vest­ment. It is bound to af­fect the equi­lib­rium that Ja­panese au­to­mo­biles have main­tained in Pak­istan. It may not bode well for the Ja­panese au­tomak­ers’ con­fi­dence in the coun­try as well as the loyal users of these au­to­mo­biles.

Those who buy au­to­mo­biles show in­ter­est in Ja­panese brands for their tough­ness, long- term value, higher re­sale value and avail­abil­ity of spare parts, which is why more Toy­otas and Hon­das are seen in Pak­istan, es­pe­cially in Karachi. To gain a com­pet­i­tive edge over Suzuki, the Euro­pean and Korean com­pa­nies may even at­tempt to fol­low a mar­ket pen­e­tra­tion strat­egy be­cause this Ja­panese brand has a pres­ence in ev­ery part of the coun­try.

Euro­pean and Korean au­to­mo­bile man­u­fac­tur­ers must learn from their past ex­pe­ri­ence be­fore mak­ing an en­try into the Pak­istani mar­ket. Fiat, an Ital­ian car com­pany came to Pak­istan, first in the 1990s and later in the early 2000s, but could not man­age to stay afloat due to the com­pe­ti­tion. Sim­i­larly, Korea’s Hyundai has been selling cars in Pak­istan but has not been suc­cess­ful in win­ning a ma­jor chunk of the mar­ket. The Euro­pean and Korean com­pa­nies must cre­ate a worth­while strat­egy to mar­ket their cars be­cause the av­er­age Pak­istani au­to­mo­bile user will take into con­sid­er­a­tion many fac­tors be­fore switch­ing from Toy­ota, Honda or Suzuki, which have po­si­tioned them­selves well in the mar­ket and in the buyer’s mind.

If the Ger­man au­to­mo­bile man­u­fac­tur­ers can strike a deal with Pak­istan in selling their cars, it will cre­ate an im­pe­tus in gen­er­at­ing rev­enue and pro­vide Pak­istani au­to­mo­bile users with cars that last a life­time. How­ever, the prices of these cars will at­tract only the elite or the up­per- mid­dle class and the masses will still pre­fer buy­ing Toy­otas and Suzukis.

The Euro­pean and Korean com­pa­nies can make an en­try by pro­vid­ing ve­hi­cles for busi­ness and com­mer­cial use. If plans are set and the hege­mony of the public trans­port sec­tor can be di­min­ished, many for­eign com­pa­nies can in­stall their man­u­fac­tur­ing plants in Pak­istan to as­sem­ble com­mer­cial ve­hi­cles that will pro­vide job op­por­tu­ni­ties and in­duce new life in Pak­istan’s au­to­mo­bile sec­tor.

The car loan scheme ini­ti­ated in 2001- 02 did serve to in­crease the num­ber of cars in Pak­istan as any­one hav­ing the money to fi­nance a car loan took ad­van­tage of the scheme. If the au­to­mo­bile sec­tor’s eco­nomic re­vival is big enough to at­tract Euro­pean and Korean com­pa­nies, then the car loan scheme can be ap­plied to these cars as well. The gov­ern­ment also needs to se­ri­ously con­sider the grow­ing traf­fic in Pak­istani cities, es­pe­cially Karachi, be­fore grant­ing per­mis­sion to such com­pa­nies to en­ter the coun­try.

With Toy­ota, Honda, and Suzuki main­tain­ing their place as giants in Pak­istan’s au­to­mo­bile sec­tor, there is a need for the Euro­pean and Korean man­u­fac­tures to find a foothold and of­fer more va­ri­ety and value for money for the car cus­tomer.

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