Low sales and dropping profits: Are carmakers in trouble?

Past month or so has been pretty tough for Pakistan’s economy and the auto assemblers have been one of those that have been hit the hardest. Toyota had to return people their booking amounts and several car companies observed non-production days. The month of July 2022 was a rock bottom for industries and with the sales figures for the month being revealed shows that was true for the auto industry as well.

The overall sales of cars in Pakistan took a massive drop and sold only 11,837 cars which is a decline of almost 58pc on a month-on-month basis. As mentioned above, many companies observed non-production days (NPDs), but also the fact that many of them stopped taking new orders altogether. This includes Kia, Suzuki, and Toyota which observed NPDs from August 1st to 13th.

Dwindling sales

Let’s start with Toyota first. Only a few months ago, Toyota was celebrating record sales almost every month and now from becoming the kings of Pakistan’s auto industry to recording low per month sales, Toyota has fallen down a long way. The company was able to sell only 2,375 CKD units in the month of July 2022. That is a 62pc drop in sales and happens to be the lowest sales figures in the last two years in the company’s history. The CKD cars in question are Corolla, Yaris, Hilux/Revo and Fortuner. The low sales were attributed to State Bank’s hesitation to issue companies letter of credit which is required to do raw material purchases from international markets. Even in the international market, Toyota Japan posted a 42% drop in its operating profits last Thursday. 

Hyundai took maybe one of the worst economic bumps among car assemblers and was able to sell only 213 units combined. Based on month-on-month sales, that is a drop of almost 90pc. The most astonishing aspect of this is the fact that the company sold zero units of Sonata and Elantra in July. In June 2022, the company sold 409 units of Elantra and 201 units of Sonata.

Suzuki Pakistan is also in the same boat and was able to sell only 6,679 units (passenger and commercial vehicles) in the month of July 2022. Suzuki Alto is the only thing keeping the company afloat with the sales of only 4,618 units otherwise it isn’t going well for the company. But do keep in mind that Alto outsold big names like Corolla and Civic/City combined. Only 321 units of Suzuki Swift, the star of the company, were able to sell. The company displayed 5 new cars at the last Pakistan Auto Show 2022 but considering the condition of the auto industry and Pakistan’s economy on the whole, expecting those new cars to make an official launch in Pakistan is a highly contentious notion. Percentage-wise, that is a decline of 58%.

Honda also recorded a drop in the sales but compared to other car assemblers, the drop was not as horrible as lets say Hyundai or Toyota. Based on the month-on-month sales number, the company recorded a 36pc decline in its sales. The company sold 2,537 units. Considering not all sales figures of all the companies have been issued, maybe Honda has done fine at least for now. In theory, they can breathe a sigh of relief at least for now. Keep in mind the company posted a 29pc decline in its profits for the first quarter of the year (Rs. 658.2 million compared to Rs. 928.2 million in the same financial period).

Car Prices of the Past and the Present

Meanwhile, the dollar was flying high and Pak rupee was tumbling hard. Dollar almost touched 250 rupees during this time in the open market. The dollar-pak rupee disparity and companies’ reliance on foriegn markets for raw materials (CKD kits) meant high car prices. This also contributed to the slowdown in sales for July. If you compare current prices of cars from today to, let’s say, last year, the difference is astounding. Something as basic as Suzuki Alto now costs as much as Rs 2,399,000 (Alto AGS August 2022 price) compared to what it was back a year ago (Rs 1,521,000 August 2021 price). This has been the same for all car assemblers in Pakistan. Top of the line Suzuki Swift GLX CVT now costs almost Rs 4 million. 

The price of Honda City saw an increase of around Rs 1.5 million (depending upon the variant) in these 12 months or so. The new 11th gen Honda Civic RS now costs as much as Rs 8.1 million. It started selling for around Rs 6.1 million upon its launch back in February 2022.

Similarly, Yaris saw an increase of as much as Rs 1.7 million in the same period. And Honda and Toyota are not the only ones. Changan Alsvin saw an increase of around Rs 1.2 million depending upon the variant. Alsvin and Saga were supposed to be more affordable options among its competitors but it seems that is not the case anymore. Top of the line Proton Saga Ace Automatic is for Rs. 3,149,000 now. Even something as obscure as Price Pearl saw an increase of Rs 800,000 in these last two month; from Rs 1,111,000 to Rs 1,920,000. 

Needless to say, the month of July wreaked havoc on Pakistan’s economy. Even though the USD has dropped a little, the economy won’t recover as soon as we would hope it to. The next month or so is also going to be slow and car assemblers will be reporting low sales figures and drop in profits. The car assemblers rely heavily on raw materials from foreign countries. That means our foreign reserves bleed profusely. We need to support and promote localisation. Honda Pakistan is operating at 60% localisation overall. Rest of the carmakers in Pakistan are also hovering on similar localisation numbers.

Sky-high car prices indicate hard times for assemblers and consumers ahead

Leave cars at a side, even motorcycles are getting out of hand. New top of the line 125cc Yamaha now costs above 3 lacs. Yamaha bikes saw price bumps of as much as 25000 PKR. The new CG 125 Honda costs Rs 180,000. The Honda CD70 has crossed the Rs 100,000 mark. So it is safe to say that it’s bad all around.

Localisation is the key

It is also a sad fact that even when the dollar increases, these car companies are quick to increase the prices of their cars. But when the value of the dollar drops, the same companies ignore to provide relief to the customer. With abysmal localisation status of most cars, the final price of cars is always going to fluctuate with the price of USD. And car companies divert the pressure directly to the end consumer and expect them to bear the brunt. The eight month of fiscal year 2022 ended with $1.102bn worth of import bill compared to $557 million in the same month of the previous fiscal year. And most of it was thanks to the new Chinese and Korean automakers who have not invested enough to increase the localisation of their cars. MG, thanks to poor policies, found a loophole and brought in SUVs in droves. All these new companies including established names need to start working on localisation on emergency basis. 

A lot needs to change in our car industry, from government’s involvement and regulation, to these companies being conscious about their decisions. We can only hope for things to improve in the future. 

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