Following a staggering 44% decline in car sales in the first quarter of the current year, automakers are swallowing a bitter pill and cutting prices, giving discounts and deals at every possible opportunity! Companies claim that the rupee’s strengthening value is the reason behind these price cuts, but their financial statements don’t support this claim. Whether the rupee appreciates or not, local automakers are in a dire situation to increase volume.
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In order to clear their inventory and increase volume, almost all players have lowered their prices and/or extended discounts on various models. But Pak Suzuki, the leading automaker in Pakistan in terms of market share is yet to announce a price revision. The company is witnessing a challenging period since the beginning of FY18 having incurred quarterly losses in 12 out of the 21 quarters under review.
The financial information showed that the company’s prices were falling short of the expenses it was paying for production. The company has only recently increased prices to the point that its costs are significantly out of line, yet even so, its income flows are barely keeping up. But together with production woes, in the shape of import restrictions & difficulties obtaining the Letters of Credit (LCs), and repetitive plant shutdowns due to the lack of inventory in hand, the sales volumes are taking a hit.
Like other assemblers, Pak Suzuki is also offering various discounts and incentives to boost sales. Still, the first quarter sales of this fiscal year show that Suzuki was able to sell 10,946 units compared to 16,639 units sold in the first quarter of the previous fiscal year, witnessing a 34% decline. In terms of individual models, the company is counting big on Alto, which despite an overall 27% decline in sales is still a market leader and helping Suzuki earn a major portion of its bread & butter. The rest of the lineup is taking a beating with up to a colossal 55% decline in sales.
Last month, Pak Suzuki decided to delist from the Pakistan Stock Exchange (PSX) as its parent company (Suzuki Motor Company Japan) intends to take full control of the company. However rebuking the news regarding its alleged exit, the company said that within Suzuki’s global strategy, Pakistan remains one of the most important markets and the Japanese company is convinced of the future potential of Pakistan.
Suzuki has likely attempted everything to increase sales volume (other than lowering prices), but the company hasn’t seen much success from these efforts yet. Analysts anticipate a further 9% drop in sales of locally assembled vehicles with volumes likely to remain subdued throughout the entire fiscal year 2023-24. This is certainly not a good sign for Pak Suzuki and the local auto industry itself.
Historically, there has always been a one-way relationship between PKR-dollar parity and car prices in Pakistan. With a depreciating rupee, prices go up, but when the rupee appreciates, assemblers wait it out until it depreciates again and holds off a fresh price increase. But now for sure times are changing. For their survival, assemblers desperately need volumes— will they be able to achieve it?
A computer animation professional with over 23 years of industry experience having served in leading organizations, TV channels & production facilities in Pakistan. An avid car enthusiast and petrolhead with an affection to deliver quality content to help shape opinions. Formerly written for PakWheels as well as major publications including Dawn. Founder of CarSpiritPK.com