Will We Get Quality Cars in Affordable Prices?

The new Auto Policy 2016-21 has opened door for several automakers to step in our market, as the government intends to shake up the Japanese-dominated car market by attracting European, South Korean and Chinese players to loosen the grip of Toyota, Honda and Suzuki (Big3).

Renault, Hyundai, KIA and a couple of Chinese auto manufacturers are already in process of setting up their assembly plants in Pakistan. And more importantly this has forced the Big 3 to do something out of the ordinary. Suzuki, Toyota and Honda which long dominated the automobile market with a handful of options that never rivaled each other are now forced to prepare for some severe competition against the newcomers.

Related: The Oligopoly Redefined..

The Big3 have reportedly geared up to introduce new vehicles in 2018 and 2019. Indus Motors will discontinue the 1300cc Corolla variants and will instead launch the Vios sedan as a replacement likely towards Q3 2018. Pak Suzuki has also finally decided to bid a farewell to the 30 year old Mehran as the company will introduce the 660cc Alto in early 2019. Whereas Honda Atlas is also considering to assemble the 1200cc Brio hatchback locally. It is also reported that the local vendors have already started the development of parts for Suzuki Alto (660cc) and Toyota Vios.

Toyota Vios is believed to be launched in Pakistan by July 2018, replacing the 1300cc Corolla variants.

It is believed that nearly 18 models from different manufacturers will be introduced in Pakistan by 2019. This will finally give the auto consumers some good variety of brand new vehicles to choose from, and more importantly they will be able to choose between two different products in a given vehicle segment which was never the case since the previous 2 decades.

Related: Alto 660cc, Toyota Vios and Honda Brio To Be Launched in 2018/19

However the point of concern remains, whether the prices of these upcoming cars are going to be within the reach? As we have seen with the recent examples of Suzuki Vitara and Ciaz, Toyota Corolla facelift, Honda BR-V and the newly launched Cultus (Celerio), all have been priced well beyond the limits considering the fact that these cars are available at a much reasonable price yet better equipped elsewhere. It seems as if the prices of upcoming cars will remain on a higher side too, due to the below mentioned factors:

Rupee Devaluation Against Dollar

Considering the ongoing Rupee devaluation against the US Dollar, car manufacturers have already indicated to increase the car prices of both passenger & commercial vehicles from 10% to 15%. Since the local production of automobiles is yet to reach the maximum level of localization, key parts still have to be imported which are dependent on the Rupee-Dollar conversion. An industry representative from leading auto manufacturer indicated that the dollar which is already equivalent to Rs. 110 will seriously affect the prices of upcoming new cars.

Existing Assemblers Pushing up the Prices

Even before the rupee devaluation, the existing local assemblers jacked up their product prices. The Suzuki Ciaz was launched with a relatively higher price tag of PKR 16.99 lac for the manual and PKR 18.39 lac for the automatic version, however just a month after its launch Pak Suzuki pushed its price tag beyond the limits of insanity. The Pak Suzuki Ciaz is currently priced at PKR 18.59 for the manual and PKR 19.99 for the automatic variant.

Related: Ciaz Outsells City in India, Unable to Sell in Pakistan

Honda BR-V is another example, for a car that roughly cost around a Honda City in other markets, is priced nearly 4 lac more than the flagship 1.5 City Aspire. Similarly Indus Motors pushed the prices of Corolla variants up when the facelift was introduced earlier this year. The hot selling Corolla GLi Automatic is now available at PKR 19.64 lac while the flagship Altis Grande is priced at PKR 25.49 lac.

The better equipped Celerio facelift with AMT in India cost INR 5.17 (PKR 8.41 lac)

Pak Suzuki’s Cultus with Auto Gear Shift was the most recent example of economic atrocity. Celerio cost just INR 5.17 (PKR 8.41 lac) for the fully equipped AMT version across the border, however Pak Suzuki Cultus VXL AGS is insanely priced at PKR 15.2 here in Pakistan.

Another Reason to Set a High Price

This has given more reasons for newcomers to price their cars likewise. Imagine if Suzuki Cultus was available at PKR 13.9 lac as before, any newcomer willing to penetrate in the market would have priced their 1.0 liter hatchback well below the PKR 13.9 lac mark. However now when the same hatchback with just a semi-automatic transmission is available at PKR 15.2 lac, this will give newcomers the liberty to price their product around PKR 15 lac as well.

Related: Comparison: Maruti Celerio vs Pak Suzuki Cultus

In the above scenario any player willing to introduce a vehicle in Pakistan will have an edge to price it well above what the car actually costs while pocketing decent profit on each sale. This may sound fruitful from the business point of view, but at the end of the day the consumer will suffer.

Price Control Mechanism, A Solution?

Although the new Auto Policy 2016-21 has opened up doors for competition in our market, something which was non-existent up until now. Perhaps the next step for the government would be to implement a price control mechanism, or at least mark minimum eco, safety & quality guidelines which should be strictly followed by the automakers operating in Pakistan.

Related: Pak Suzuki to Launch Limited Edition Mehran in 2018

The 30 year old Suzuki Mehran is the only passenger car to cost under PKR 1.0 million in our country whereas the same amount of money can bring you much modern, safer, fuel efficient and technologically sophisticated vehicle elsewhere. We do welcome the upcoming competition in the automobile sector, however certain measures safeguarding consumer welfare are badly needed to be taken care of.

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