Auto sec­tor growth

The Pak Banker - - FRONT PAGE -

Pak­istan's car mar­ket is grow­ing fast. Ac­cord­ing to a re­port, by 2022 Pak­istan's car mar­ket could see growth from the cur­rent 200,000 units to 500,000 units, not count­ing the in­crease in the mar­ket for com­mer­cial ve­hi­cles or new ven­tures in that seg­ment. An­other es­ti­mate­says that Pak­istan's pas­sen­ger cars man­u­fac­tur­ing ca­pac­ity would go up to 443,000 units by 2022. Ac­cord­ing to me­dia re­ports, ten new car ven­tures are en­ter­ing the mar­ket. Many of the prospec­tive plans have been re­al­ized-ground break­ing cer­e­monies for Lucky-Kia and Nishat-Hyundai were held to kick start their green­field plants while brown­field ap­proval made for Ghand­hara Nis­san saw the re­vival of its as­sem­bly plant to pro­duce Nis­san's Dat­sun pas­sen­ger car.

Much time has been spent lament­ing that in a grow­ing econ­omy like Pak­istan where the mid­dle class is ex­pand­ing and car pur­chas­ing has be­come rel­a­tively af­ford­able, no new en­trant iden­ti­fied smal­l­engine com­pact cars as their tar­get ve­hi­cles. In fact, most skirted around the sub­ject. But there is a rea­son why the lo­cally as­sem­bled Wagon-R is the fastest grow­ing car right now, con­tin­u­ing its growth de­spite a re­cent 6 per­cent price hike.Suzuki has ac­tu­ally been the big­gest ben­e­fi­ciary of grow­ing auto de­mand-hav­ing grown its mar­ket share to now 58 per­cent (FY17: 53%). All of its small car vari­ants have out-per­formed the mar­ket, sim­ply be­cause the in­cre­men­tal de­mand is com­ing in these cat­e­gories of cars. An­other proxy for the de­mand of small cars is the im­port of used cars which is around 60,000-70,000 units an­nu­ally, mostly in the small-en­gine car seg­ment with pop­u­lar vari­ants like Dai­hatsu Mira and Move, Nis­san Dayz, High­way Star and Pixix, Suzuki Wagon-R (au­to­matic) and Alto etc.

On the other hand, the MPV and ad­ja­cent seg­ments in Pak­istan have been grow­ing. Toy­ota's SUV For­tuner has seen a fast in­cline while Honda's crossover SUV, BR-V has seen a dra­matic jump in sales since it was in­tro­duced first end of 2016 as a lo­cally as­sem­bled ve­hi­cle. These big, less suave ve­hi­cles are pop­u­lar in some of the most de­vel­oped economies as they are spa­cious enough for grow­ing fam­i­lies while pow­er­ful enough for off-road trav­els. How­ever small the mar­ket in Pak­istan for that would be, it ex­ists and is grow­ing.

It was ear­lier es­ti­mated that the share of higher en­gine cat­e­gory may grow with the ar­rival of new en­trants. While that can nei­ther be con­firmed nor de­nied just yet, two things should be pointed out. One, that we must not un­der­es­ti­mate the high-end mar­ket. Pre­mium money mar­kets in the auto in­dus­try, how­ever much of a nui­sance it is, has picked up fun­da­men­tally be­cause au­tomak­ers can­not keep up with the de­mand for these cars; and are un­able to de­liver cars on time. That demon­strates growth prospects in the cat­e­gory.On the other hand, if as many as ten new car com­pa­nies are en­ter­ing the space, not all can find space in the high-en­gine seg­ment. Even if they do, cars will have to be a lot more af­ford­able if they are tar­get­ing mid­dle-in­come groups as well. For that, com­pa­nies will have to lo­cal­ize well and fast. Right now, the lo­cally as­sem­bly SUV seg­ment is mostly made of im­ported con­tent which au­to­mat­i­cally takes up the price a few notches up. In this con­text, the most im­por­tant thing to re­mem­ber is that au­tomak­ers must try to cap­ture the depth and vi­brancy of the mar­ket in or­der to meet the ris­ing de­mand that ex­ists for mo­tor ve­hi­cles at af­ford­able prices.

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