Auto sector boom

New entrants change market dynamics

PAKISTAN’S automobile industry has remained an oligopoly for the better part of the past four decades, dominated by what has been dubbed the ‘big three’. Due to the natural barriers to entry that therefore exist, customers have to put up with a very limited and unnecessarily expensive variety of automobiles that lack safety and luxury features, which have become industry standards across the world. A comprehensive auto policy was introduced by the previous government in 2016 to address these issues to not only provide customers better options but also generate FDI for the government and in turn, much – needed economic activity as well. Incentives were offered for Greenfield and Brownfield investments that have produced two to three prominent new players that have now started to disrupt the market, having finally set up plants that are running at full capacity to meet the exponential demand for their cars. A combination of more features as standard and an overall better build quality by brand names that are renowned the world over has set off a buying frenzy in the country and this year will see another 15 new cars launch meaning more options for eager customers. Last year saw a 53.5% drop in car sales due to Covid-19 that forced many manufacturers to keep their plants closed as there were practically no new orders for their products coming in. The industry has however bounced back, recording a 44% increase in car sales yearon-year in January alone with a clear expectation that demand will grow stronger in the coming months.

Another issue facing consumers is that there are simply no good quality new cars available at lower price points, forcing them to buy used imported or older locally manufactured models from the secondary market. The variants being introduced in the country by new entrants have started to fill in those gaps, which is a welcome relief for consumers looking for cars in limited budgets. It is commendable that the PTI government has also given due importance to electric vehicles, formulating and announcing a policy that aims to make them cheaper than conventional cars through lower duties, taxes and registration costs. Although it will take time for the country’s auto sector to truly become a buyer’s market, the policy in place currently is a good first step that puts the customer first.