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Automobile Sector in Pakistan

In Pakistan, the automobile industry ever since Japanese automakers came to Pakistan in 1970’s all vehicles were assembled in Japan and later, they shifted assembly plants to export markets to save cost and maximize profitability. In Pakistan’s last 50 years of auto car history for sure Toyota remains the top selling brand ever since day one. No doubt Toyota has ruled the medium size sedan car segment and even today it’s the preferred choice of all car enthusiasts and it’s the only reason why Toyota is able to charge more premium than other Japanese competitors.

Suzuki was able to target low-income consumer groups and it became a preferred choice for people who want an affordable car in the minimum price bracket and as a result both the Japanese auto giants have captured 70% to 80% of market share of the total number of vehicles sold in Pakistan in the last three decades or more.

Toyota and Suzuki are in the top slot considering brand recognition value, sales figures and total number of cars sold in any year.

The above two brands are market leaders in the middle size sedan and hatchback passenger car category. No British, German, French or Korean auto manufacturers were able to penetrate in Pakistani automobile market and it was all done at a price that we have paid as Pakistani since the 90’s. The Japanese product was sold in Pakistan with minimal features, offering less value and charging higher price to maximize profits. In 1988 Suzuki Mehran in Pakistan was sold for 60,000 PKR whereas it was sold for 47,000 INR in India which is almost the same price if we convert the currency rate to PKR with exactly the same value to price ratio. Now in the year 2021 the Suzuki Swift in India is around 1.8m PKR whereas 22.5m PKR in Pakistan has less value to price ratio, for understanding the outdated model is sold in Pakistan with less features to the customers who want to drive the same car in Pakistan.

As a matter of fact, all Japanese cars that are sold in the Pakistani market do not have all safety and drive comfort features that are offered in every vehicle that is sold in Europe, Middle East or US. For example, outdated engine technology or outgoing generation of engines, absence of digital automatic climate control air-conditioning, traction control, low quality local tires to save cost thus compromising drive comfort, absence of front back seats airbags, absence of many drives’ stability and safety features and the list goes on. For this reason, even top line variants sold in Pakistan are not comparable to similar variants sold in other regions of the world.

The price vs value offered in India and all neighboring countries like Middle East China, Indonesia, Thailand, Malaysia, and Singapore and Japan is far more than what Pakistani customers will get for the same car variant.

What it tells is with less cost, less value with higher price for Pakistani market implying higher profitability in Pakistan region. The Japanese manufacturers also have minimized manufacturing cost by producing locally assembled cars in Pakistan and by outsourcing most of the car parts to local suppliers in Pakistan for example interior dash boards, rubber seals, tires, seats, bumper, chrome grills etc. almost 60% of the parts are sourced from local manufacturer suppliers. Second reason for this dilemma is because the government is not interested in opening a fair competition and as a result a monopoly for the Japanese market is created.

The Japanese auto makers also threaten political governments for possible closing of auto manufacturing plants in Pakistan if there is a shift in auto policy and as a result major layoffs and negative impact to the economy of Pakistan. They pay high taxes to the government and it’s a give and take policy for both stakeholders for a price where Pakistani people do not have much choice other than to buy low quality products at higher price. This is the reason no Auto manufacturers from around the world could ever sell their high-quality product in Pakistan.

But until now there is a policy shift by the government that is the reason, we will see many foreign auto manufacturers enter Pakistan in all segments and the Japanese will lose their market share in coming years. The Korean, Chinese, German brands have already got into the competition and are now gradually gaining the momentum to offer a better product at less value. It is changing consumer perception and Japanese manufacturers in order to save the outgoing share have shifted their marketing strategy to save the Japanese prestige in the Automobile sector.

What they have done is to change the segment and move from the economy segment to the luxury or premium segment market. It means to sell less cars as market size is less but earn a premium in order to make enough profit per vehicle to sustain business in the Pakistani auto market. But this approach may not work as shifting segments means trying to enter other segments ruled by other brands that are already market leaders of that segment and it will be even harder to take their share. But this is the only strategy that may work out for some time. The Japanese are also trying to introduce low budget options for their cars in order to not give any space to new entrants. They are trying to create a competition in the low budget price segment with Koreans and Chinese who are moving in aggressively and have invested in Pakistan and are trying their best to take the low budget market initially by offering greater value for the price charged for the new product and entrant in the market.

A million-dollar question that still needs to be answered is how good is the inherent quality of the product and how close it is to the perceived quality of these brands. The time will decide as Korean have already changed global perception for Korean cars sold in Europe and the US. The prices of Korean cars sold around the world are now almost the same as the Japanese brands, meaning that with added value and less price you are getting the best product for the buck spent on the car. The Korean brands are now taking global market share of Japanese auto manufacturers slowly and gradually while China and Malaysia are also trying their best to take the market.

China wants to build a new market for low-income groups by offering maximum features that are present in the premium segment at an economical price that every common man can afford and once the perception changes for low quality Chinese products and once the gap shortens only then Chinese will start taking global market share from Japan and Korea. In other words, China will become the market leader for the low budget car segment especially in those countries which are less developed and have a huge gap in low to high income groups. Later the product acceptance will lead to entering other international markets but it will be a good thing for a common man who will have multiple options and maximum number of choices to go for the very best.

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Category: Business

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