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Friday, May 17, 2024

Automakers’ Price Cuts Spark Debate Amidst Slowing Demand in Pakistan

Automakers in Pakistan implement historic price cuts on car models amid slow market demand, prompting debate among experts and dealers over the strategy's effectiveness in driving genuine sales versus attracting speculative investors, against a backdrop of challenging economic conditions and government policies.

several major automakers implemented historic price reductions on multiple car models, citing overwhelming responses. Lucky Motor Company (LMC), which assembles KIA cars in Pakistan, led the charge by slashing the price of the KIA Stonic by up to Rs1,500,000, followed by a significant cut in Swift prices amounting to Rs710,000. This trend was further echoed by other manufacturers like Pak Suzuki Motors, who reduced prices of their vehicles following a similar strategy by Toyota and Honda earlier in March.

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While automakers have lauded these price cuts as a success, industry experts and dealers have raised eyebrows, labeling the move as a mere “marketing stunt” amidst sluggish demand in the South Asian market. Hajji Muhammad Shahzad, chairman of the All Pakistan Motor Dealers Association (APMDA), described the price reduction as a strategic maneuver by LMC to clear an inventory backlog of around 300-350 KIA Stonic vehicles that were not selling well. Shahzad suggested that this created artificial interest primarily among investors rather than genuine buyers, with additional costs due to high demand.

Unanticipated Market Response

In response to the criticism, LMC’s CEO Muhammad Faisal defended the price adjustments, emphasizing the company’s intention to position the KIA Stonic competitively against sedan models in the Pakistani market. Faisal admitted that the overwhelming customer response exceeded their expectations, indicating a deeper resonance with consumers than anticipated. However, concerns persist regarding the impact of these price drops on genuine market dynamics versus investor-driven speculation.

The context for such drastic measures is rooted in Pakistan’s challenging economic landscape. Auto industry expert Mashood Ali Khan highlighted the pivotal role of pricing amidst prevailing high inflation and economic strain. He suggested that the rush to book newly priced vehicles primarily attracted investors rather than end consumers, limiting the reach of these reductions to actual buyers.

Economic Trends and Consumer Behavior

The backdrop of declining car sales in Pakistan paints a broader picture of economic challenges facing the automotive sector. With a 38 percent decrease in car sales over nine months of the fiscal year, coupled with historic high interest rates and diminishing consumer purchasing power, the industry faces formidable headwinds. Government policies, such as the imposition of a 25 percent sales tax on locally assembled cars exceeding Rs4 million, further contribute to market complexities and pricing dynamics.

Looking ahead, automakers like LMC are cautiously evaluating market responses and refining booking procedures to prioritize genuine customers over speculative investors. Despite the recent price cuts, the overall cost of vehicles in Pakistan has escalated by approximately 40 percent in the last two years, underscoring the persistent challenges in the industry. Khan advocated for long-term policies to promote auto industrialization and localize auto parts, fostering a sustainable ecosystem for affordable cars in Pakistan’s market.