I fully agree. Exchange rate as in July 2018 was 128 PKR to 1 USD. Now it is 156. That's under 25% depreciation in 1 year since elections last year.
Out of total sales of local assemblers, around 50%-60% is cost of CKD units and other items which they import. Cost of good sold is generally around 80% of their sales, which contain other cost items like salaries, factory overheads, marketing expenses, freight, fuel, repair maintenance, depreciation etc.
So as a result of depreciation cost of imports went up by 25% from last year. With that cost being 50-60% of sales, a 10-15% increase in sales price would have cover that, in case they want to pass all cost increase to buyers and make the same amount of profit.
But what did these assemblers do? They increase prices by around 30%, more than the increase in costs. They thought the resultant increase in their pricing margin (price minus cost) on per unit basis will more than offset the reduction in volumes due to price increase. They also thought that the volume sales reduction will be temporary while higher price base will be permanent and they will ride this period. However their strategy is now on their faces. They don't care much though as they have already minted a lot of money in this business and they can afford these tactics (such as plant shutdown) for a long time.
It's important to remember that with this rupee depreciation which was increasing cost of business, they had other choices as well. They could have shared some burden of cost increase by marginally increasing prices which wouldn't have impacted their volumes much. That's what almost all other sector players are doing in the current market where there's competition and they know that in order to survive, they have to reduce their margins a bit as higher cost of business cannot be just passed on to buyers.
The car assemblers, who are enjoying total lack of industry competition, just got greedy and took this depreciation as an opportunity to improve their margins further. Never did they expect their volumes to go down by 50% with that pricing strategy that is hurting them badly.
