Auto sales trends show economic divide widening in Pakistan

KARACHI: Being among the top drivers of any country’s commercial activities, durable goods industry is a critical gauge of economy and without a doubt no sector can represent it better than the automotive.

Given the sales trends, it is not difficult to deduce the divide between income groups is increasing, resulting in decreased affordability. In simple words, the rich are getting richer, while the poor poorer.

The middle income group is gradually slipping down into the low-income group.

There’s over a million-rupee gap for a middle income group person to graduate from an acceptable brand bike such as Honda CD70 to a safer four-wheeler of an acceptable brand like Suzuki Alto.

If Pakistan’s population is examined, expectations must be that there should be a lot of options in the low-priced cars segment such as hatchbacks and B-category sedans.

But recent trend in local auto industry shows a very different picture. Over a dozen different SUVs have been launched during the last couple of years, which are mostly priced above Rs4 million. The SUV segment now has the highest number of cars.

Lucky Motor Company has successfully launched Kia Sportage and later Sorento and Stonic. KLM is also expected to introduce Peugeot 2008 next month, also a crossover SUV.

Hyundai’s, another Korean company, Tucson has also hit the auto market lately.

The country also saw arrival of several Chinese-collaborated SUVs including MG-HS, MG-ZS, MGZS-EV, DFSK Glory 580, DFSK Glory 580 Pro and BAIC BJ-40. Recently, Ghandhara Nissan has also launched Chinese Chery company’s SUVs Tiggo 4 and Tiggo 8. New Chinese entrant Changan Pakistan also plans to try its luck with an SUV.

There are reports that another Chinese company GAC Motors is also brining in one or more SUVs in Pakistan. Malaysian Proton SUV X-70 has also made its way to Pakistan roads.

In comparison, LMC launched a hatchback Picanto, Changan a sedan Alsvin, United Motors Chery hatchback Alpha, formerly known as Chery QQ, and Proton has launched Saga, a sedan.

Industry players attribute this phenomenon in Pakistan’s auto industry to the global trend of SUVs and dilapidated or no road infrastructure in the country and also increase in domestic traveling after the emergence of Covid-19 pandemic.

“I think more SUVs in the market and high motorcycle sales show the rich are becoming richer,” said Ahmed Lakhani, a senior research analyst.

“They have the buying power and they are buying; there’s no significant demand for low-price vehicles that may help companies earn through high volumes.”

“On the other hand, people of the lower income group, without proper transport infrastructure, are forced to buy bikes and opt for an unsafe mode of transport,” he explained.

He added that profit margin in SUV segment was much higher compared to hatch-backs and b-category sedans.

“The two-wheel segment properly reflects the population characteristics. Not the four-wheel segment, which is skewing to cater to a market segment that is little sensitive to price – the richer one. For them price doesn’t matter, they will still buy,” he said.

On the other hand, the motorcycle segment was price sensitive and the market was flooded

with dozens of low-priced and low-quality Chinese motorcycles, according to industry officials, who add that this phenomenon is changing as the rising sale of Chinese low-priced bikes have started to fall.

“Prices of all bikes have gone up,” said Sabir Sheikh, Chairman Association of Pakistan Motorcycle Assemblers, adding, “But the income has not gone up, especially for those, who used to purchase Chinese motorcycles”.

A Chinese motorcycle used to cost around Rs40,000. Now most of them are priced at almost Rs70,000. Japanese Honda 70cc bike also rose Rs30,000 to Rs96,000 during the same time.

The industry players blame rupee depreciation, higher raw material and shipping cost for price hike.

“A person earning Rs20,000 or Rs25,000/month can no longer purchase even a Chinese bike,” Sheikh said.

He added that most of the low-cost motorcycles were purchased on installment.

“The segment that used to buy these motorcycles is finding it difficult to run their daily affairs amid rising inflation and buying a bike is out of question for most of them now,” he explained.

“In fact many of them have lost work during the pandemic,” he said.

He said the Chinese motorcycles used to command the two-wheel market with 60 percent of the market share, but now it was down at 35 percent.

“The Japanese motorcycles, which are also expensive, have increased their market share to around 65 percent,” he said.

Sheikh said cheap Chinese bike makers were now struggling and facing cash-flow issues due to low sales.

Sheikh fears many of them may close down.

He said that last year, the total motorcycle sales were nearing a three million figure.

“But I don’t think it will even reach two million this year,” Sheikh added.

“Chinese bikes sales, which used to be around 1.6 million units annually, have fallen below 0.8 million because there’s a big slump in demand as inflationary pressures have reduced the buying power of the segment amid rising bike prices,” he said.