The Oligopoly Of Existing Pakistani Carmakers And The Challenges For The New Entrants

pakistani carmakers

The Big 3 automakers have been ruling over the market for quite some time now. And it would not be easy to break the oligopoly for the new players and enter the market without any hurdles.

Chevrolet made entry into Pakistani market in December 2005 in collaboration with Nexus Automotive Limited. Nexus used to import and assemble the vehicle to ensure that the vehicles met the standards set by the Chevy.

Also Read: Pakistan Approves The New Auto Policy For The Next Five Years

In late 1990s Dewan Farooque Motors Limited (DFML) started production and distribution of vehicles by Hyundai Motor Company and Kia Motors Corporation, both brands were pushed out of the market by Big 3, and in some ways, the government’s attitude and policies aided their exit. Well considering the tone of policy makers has changed quite a bit with the release of new auto policy, following are some the points that the new entrants who are interested in setting up their shop in Pakistan might need to keep an eye on:

Resale value:

Have you ever wonder despite all the drawbacks and criticism, Suzuki Mehran is still in the game and playing well? Of course, you have. It has great resale value. If you have bought a brand new Mehran in the year 1999 (approx. invoice price Rs250,000), you can still sell it above its original price in the market. By this standard, a Suzuki lovers can win an argument that he/she has used the car for free over the entire decade.
To the most of the Pakistani consumers, resale value counts more, ignoring the fact that purchase power of the money declines over the period. Resale value would be a great challenge for the new players as it can lead to an exit of names like KIA that had lower resale value.

Also Read: Here Are Few Car Options Under Rs5 Lacs In Pakistan!

Spares Parts:

Again, why Pak Suzuki is not upgrading their product line, despite all of these advancements in technology and constant criticism? Because you can easily fit in spare parts of early 2000s Suzuki models into their respective latest models. From side mirrors to door handle to windscreens and more, things are interchangeable. Cars like Mehran that has been in production for more than a decade enjoy this phenomenon a lot. Same goes for Honda and Toyota up to some extent.

You can easily get the genuine spare parts directly from the authorized dealer or in a local market at a very affordable price. Used parts also cover the market to some extent for Suzuki vehicles but more for cars like Toyota and Honda (kabli parts).

Chevy Joy was arguably far better car than any other available small hatchback of its time in Pakistan in terms of safety, comfort and mileage. But everyone knows how it failed to capture the market. Not only were its spare parts expensive, but they were also hard to find.
New players must have to ensure that spare parts of their vehicles are not only cheap but easily available.

Maintenance:

As compared to a German or an Italian automobile, the maintenance cost of Japanese cars, especially in Pakistan, is relatively low. The big3 have the maintenance center almost in every major city in Pakistan. Most of the services cost are fixed and preferred by the car lovers.
If your Suzuki or Toyota Corolla stops in the middle of a road, you can get their mechanics or electricians easily and will charge you reasonably. In contrast, if you have a BMW, it would not only be difficult to find a suitable mechanic/electrician, but he will also charge you a lot, leading to higher maintenance cost.

Also Read: 5 Things To Check When Buying A Used Car

Economy of scales:

If you increase the number of units produced at your plant, it will lead to a decrease in fixed cost of your product, which will result in lower cost per unit. Keeping the sale price constant it means higher profit. Higher profits and control over market price makes you strategically strong to tackle sort of competitive move that may try to undermine your strategic position.

Currently, all of the big3 reaping the benefits of economies of scale, with Pak Suzuki on the top. It means all of them are strategically strong. They have a wider control on the prices of their units. In the case of the reduction in market share, they have the benefit of the flexibility of the price.

On the other hand, new entrants would have limited control over the market and flexibility of price. And the reduction in productions/sales means higher per unit cost.

But, although new entrants have a huge task in front of them, if they play their cards right, they will enjoy a long term relationship with Pakistani auto consumers.

Mian Saddam Sarwar

Mian Saddam Sarwar has life-long love for automobiles and has experience of driving many local and imported vehicles. He is pursuing Chartered Accountancy and is Senior Audit Associate in a Big4 Accountancy firm in Islamabad.

  • Any new car maker should focus on 660cc-1000cc segment and give a little bit better quality and it can turn the tables.

    The most problematic area is the local vendors as they have not improved the quality of the parts they are manufacturing locally, rather their workmanship and quality is on decline and any new entrant would have to face poor quality of plastic and body parts.

  • Aqeel Zia Nayyer

    gone are the days when we have higher sale of Mehran. now they are only selling 2.5k-5k units only. (green cab scheme is not counted in this)

  • Kashif Akbar

    my point is, if there is sale of DATSUN GO at a price tag of approx 8.5 (which is far more if we consider its indian price), within six months, sale figures will be dramatic. we are sick of current options here, and i see seas of people want to change over. so, NISSAN is requested to be the first and fast entrant for us. we dont mind to pay more but we need a quality product.

  • وجاہت علی

    we are n have to stuck with the problem of resale infact its about time we should change this mentality or else we have to stuck with 7 lacks worth of shit!!

  • Captain Safdar

    Breaking news:- It is highest probability that No New Automaker is coming to Pakistan to build cars only for Pakistani consumers. Because trends have been changed , now car makers only build their factories in those countries from where they can export to other countries. ISLAMIC STATE of Pakistan is Not the land where we can develop RAW materials like iron/steel sheet , gear box and engine parts cheaply.We have RAW materials available in Pakistan but they are not accessible to Industries. Currently Pak made cars are made from 50 to 70 percent Local materials, while Indians have made it to 98 percent. Government of Pakistan has announced policy but is completely blind in this view. So do not expect any new automakers. Pak Suzuki is going to launch their two new cars by the end of this year.. If you want change , then you can go for FAW. The one and only hope for Pakistan.

  • Abdullah

    well i dont think we should have a problem importing cars from india…even Japan is importing Indian Maruti Suzuki Baleno….

  • Kashif

    I have copied this picture from other blog of Pak wheels. This is the way Volkswagon , Mazda and General Motors are coming in Pakistan via FAW. FAW has announced to bring more models in Pakistan…. hahaha………………….. yahooooo….. Cool

  • cbing

    Bro, most of the cars made in India are localized 100 percent. The luxury car makers like Audi, BMW, Mercedes, Jaguar hover around somewhere between 40-75% depending on the company. The other 98%, 80% etc are few cars assembled using specific parts imported from countries which are export bases for that certain car like Hyundai Santa Fe from Thailand, whereas all other Hyundai cars are made 100 percent inside Chennai factory.

  • Guest

    There is a problem importing anything from India.
    Previously seen a few people supporting imports from India. They have written that Pakistan can relax the import policy and thus Indian products could come here. These people see only one side of the coin.

    It is to be seen whether India is also interesting in exporting to Pakistan or not? In the high level talks, they always talk the Pakistan should allow imports as Confidence Building Measure, but once Pakistan allows import, will India allow the exports too? Or would they change their mind?

    Above we discussed about one side of the coin, now we discuss the remaining half of the picture: once Pakistan has imported a lot of cars from India, and then a new government comes (in India), and then they decide to put embargo on spare parts, what will happen?

    Therefore, it is not a sustainable decision to import from India, where as Pakistan has imported from Japan, Thailand, Malaysia, UK, Indonesia and China. Pakistan could even import from Iran if needed, but Iran’s trade policy is not too friendly with Pakistan.

  • cbing

    All is well. But your argument has a small flaw. As history suggests India has never taken any sanctions imposed on other countries very strictly eg trade with Iran in Indian money during sanctions. The reason is because India wants it economy to develop, and not stuck in first world political game, so does China. India is not a country to put embargo, we will more than happy to have few more export markets. Even India imported tonnes of cement during demand, because its cheap compared to other sellers. All funnels down to one thing, MONEY!

  • Muhammad Yasir

    for a captain , you are VERY VERY DEPRESSING AND UNDER MINING !

  • Muhammad Yasir

    can we have cars CHEAPER than mehran ?

  • Muhammad Yasir

    nice … BUT ?!
    why is FAW bringing cars from GM , MAZDA and VW ?!
    shouldnt those 3 COME BY THEMSELVES ?!

  • Usman Ansari

    Misunderstanding. above brochure shows which companies FAW has joint ventures with. In china VW, Toyota, Mazda & GM are FAW’s venture partners. In Pakistan, AlhHaaj Motors is.. the above list of ventures has got nothing to do with FAW Pakistan

  • Muhammad Yasir

    ok

  • Pak Suzuki

    Why you all are willing for new cars ? Mehran is a peace of mind car , we all have lot of memories associated with Mehran.. New Cars are just Shashka…… having a lot of new troubles… Simplicity is the best policy. .. Pak Suzuki must do a lobby against new cars having just crap technological elements. .. Sada zindagi apnao…. Carry Dabba chalao…..

  • Munir

    Ok.. But their V2 is not Toyota Vitz 2004 model re launched in the name of FAW?

  • ali qazmi

    so there is he,,,,,,,,,,,,,,,,,,,,,, The Sarfraz buying FAW V2……….. Its better than Passo , Cultus , Wagon R and Practical than 660 cc Tired cars

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