The year Pakistan’s auto sector got a facelift
January 1, 2018
KARACHI: If there was one area where Pakistan did well, it was the auto sector. Sales figures grew on the back of low level of inflation, interest rates, higher consumer lending and low oil prices. New players announced entering the market, while some old players looked to make a comeback as well. Existing players also made an effort through new models.
With clear policy directions from the government, upcoming car companies expedited construction work on assembly lines while well-established existing players prepared for the expected competitive market.
The rivalry among the existing companies (Honda, Toyota and Suzuki) and forthcoming players like Volkswagen, Renault, Kia, and Hyundai etc to meet market demand is going to benefit car enthusiasts. Analysts expect healthy competition in the market from 2019 after the entry of new models of Korean and European brands.
When the PML-N government launched the long-awaited five-year auto policy 2016-21 in March 2016, it was quite clear that it could attract auto giants from South Korea, Germany and France.
Car players that came in 2017
While South Korean carmaker Kia Motor Company’s entry in Pakistan was officially confirmed in December 2016, Hyundai, Volkswagen and Renault announced their entry in 2017.
Kia came in the country in a joint venture with Lucky Cement, the largest cement maker in Pakistan that has a market share of 20% in the cement industry. The first major announcement came in February 2017 when Nishat Mills – one of the largest textile mills in the country – announced a joint venture with Hyundai Motor Corporation (HMC).
Both Korean giants, Kia and Hyundai, are re-entering in Pakistan after a decade or so. However, European companies like Volkswagen and Renault are entering in a completely different market. Perhaps this is why the two giants have taken quite a long time to take a decision.
Volkswagen’s officials met with Prime Minister Shahid Khaqan Abbasi in November in which he appreciated the decision of the company to invest in Pakistan.
Just two weeks later in November again, Groupe Renault and Al-Futtaim signed an agreement for the assembly and distribution of Renault vehicles in Pakistan. The delay in Renault’s decision largely came to the fact that it was earlier in talks with Ghandhara Nissan, but the negotiations could not bear fruit.
Later, the French auto giant decided to join hands with a UAE-based conglomerate. Al-Futtaim’s global automotive operations extend to 11 markets across the Middle East, Africa and South Asia.
First locally-assembled Chinese car
After creating its own space in a Japanese-dominated car market through imported cars for two years, Al-Haj Faw Motors started assembling its first car in August. This was the first Chinese car assembled in Pakistan. Despite facing resistance in initial years, the Chinese brand has now made some inroads. The company intended to initially produce 300 units of V2 per month and later increase the production level to 500 units by the end of 2017. Currently, the company has over 600 workers and its annual capacity is 10,000 units (single shift) that will be increased to 15,000 units by 2020.
Stock market performance
Auto sector has remained one of the best-performing sectors at the Pakistan Stock Exchange (PSX) in recent years. However, similar to the overall poor performance of the stock market in 2017, the auto industry’s returns were also not impressive.
According to the PSX data, the market capitalization of Pak Suzuki, Indus Motor and Atlas Honda Cars shrunk to Rs246.1 billion, down 9.73% from Rs272.7 billion in 2016.
Despite current and expected minor shocks like rupee depreciation, an uptick in inflation and rise in commodity prices, analysts believe the auto industry is expected to show strong growth in 2018.
