Auto sector grabs global attention

ISLAMABAD: With passenger car sales crossing a record 200,000 units a year for the first time, the forward-looking automakers are getting their production in overdrive to catch up with the ever-revving-up domestic demand in Pakistan.

According to Nikkei Asia Review Web, new players are also flocking to this market of 200 million, lured by government incentives and the opportunity to tap a growing middle class. For now, there may be enough growth to go around, but these new faces — which include the likes of Renault of France and Kia Motors of South Korea — could threaten the dominance of Japanese makers.

Pakistan saw a record high of roughly 218,000 passenger cars sold in fiscal year 2015-16, which ended last June. The leader was Pak Suzuki Motor, a subsidiary of Suzuki Motor, which landed an order from the eastern province of Punjab for 50,000 cars. The province’s government plans to use the vehicles as taxis as part of a job-creation program.

Indus Motor, a joint venture between Toyota Motor and local conglomerate House of Habib (HoH), is doing well with its mainstay Corolla, reporting that sales grew 11 percent on the year to 65,000 in fiscal 2016. 

“The market is so brisk that production can’t keep up,” Indus Motor Vice Chairman Toshiya Azuma said. Azuma expects even more growth to come. “Demand in India, our next-door neighbor, is about 4 million cars [including commercial vehicles] a year, so annual sales of about 600,000 cars is well within reach in Pakistan.” The country has a population one-sixth that of India.

Indus Motor Chairman Ali S. Habib, a member of the family behind HoH, visits the company’s auto plant every week for meetings. While he is cautious about ramping up production too quickly — “Safety is our priority. We’d like to avoid too much overtime” — he is positive about the future. “The market is very strong. [Expansion will be] step by step,” he said.

Honda Motor joint venture Honda Atlas Cars also saw record-high sales, at 35,000 Civic and City units for calendar 2016, up about 50 percent on the year. Atlas group No. 2 and CEO of Atlas Honda (a separate entity from Honda Atlas Cars) Saquib H. Shirazi said, “The new Civic is the primary driver. We’re expecting sales of around 50,000 in 2017.” These automakers are benefiting from a number of converging tailwinds. Household incomes are rising along with Pakistan’s growing economy, while prices for gasoline and diesel fuel are on the lower side as yet. Interest rates on auto loans have fallen sharply, averaging below 10 percent compared with nearly 18 percent in fiscal 2008.

More recently, the China-Pakistan Economic Corridor initiative has spurred investment in the country’s infrastructure, raising hopes that Pakistan’s highway network will be completed before long. Pak Suzuki sold about 128,000 cars in Pakistan in fiscal 2016 and controlled about 58 percent of the passenger car market. “Sales of models other than taxis, which are subject to special demand, grew by about 20 percent on the year,” Managing Director Hirofumi Nagao said. In response to this spike in demand, the company plans to invest $460 million in a new plant.

In March 2016, the government unveiled its Automobile Development Policy 2016-2021, which provides various incentives for automakers entering the market, such as reduced import taxes on parts. Seizing the opportunity, Kia Motors has partnered with Lucky Cement, the core company of the Yunus Brothers Group, one of Pakistan’s leading conglomerates.