Pakistan Automotive

Industry

NOVEMBER 16

Pak Suzuki Motors

Authored by: Hammad Hanif, Abdul Rafay
Muhammad Qasim, Abdul Rehman, Sayed Sohaib

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 TABLE OF CONTENTS

BACKGROUND ............................................................................................................ 3

ECONOMIC IMPACT ON INDUSTRY .......................................................................... 4

STATE OF COMPETITION ....................................................................................... 4-5
SPECIFIC PRESSURE POINTS ............................................................................... 5-6
ISSUE COMMON TO ALL INDUSTRIES .................................................................... 6
ISSUE UNIQUE TO SELECTED INDUSTRIES ........................................................... 6-7
PORTER’S FIVE FORCES ....................................................................................... 7-10

PEST .................................................................................................................... 10-11

SWOT ............................................................................................................... 11-13

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BACKGROUND
VISION
To be recognized as a leading organization that values customers’ needs and provides motoring
solutions with strong customer care.

MISSION
 Develop products of superior value by focusing on the customer
 Establish a refreshing and innovative company through teamwork
 Strive for individual excellence through continuous improvement

The most prominent players in the automotive industry manufacturing automobiles are Pak
Suzuki, Honda Atlas and Indus Motors Company (TOYOTA).

Pak Suzuki Motor Company Limited is the largest car manufacturer in Pakistan. It is the affiliate
of Suzuki which is a Japanese Company. PSMCL assembles and distributes cars in Pakistan. It is a
public limited company with shares being traded on the Pakistan Stock Exchange.

It was formed in 1983 as a joint corporation between Pakistan Automobile Corporation Limited
(under federal government of Pakistan) and Suzuki Motor Corporation Japan. After the
beginning of operations in 1984, PSMCL main activities were production, assembling and
marketing of different vehicles example 4x4, cars etc. The company also laid its eyes on the
export size and planned to enter the export market in long-term.

The company was privatized in 1992, when its equity increased from 25% to 40%. The company
started expanding, however, it could not fully utilize its capacity because of economic downturn
in the period.

In 2007, Pak Suzuki Motor Company Limited and Suzuki Motorcycles Pakistan Limited
amalgamated.

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ECONOMIC IMPACT ON THE INDUSTRY
Pak Suzuki has a market share of 55% which makes it the leader of the locally manufactured
cars and light commercial vehicles in Pakistan. Pak Suzuki has been making endeavors to grow
its roots in the export market and has been continuously achieving milestones. It is the pioneer
in the export of locally manufactured knock down parts which was started in 2017. In 2017, the
exports of KD parts were Rs. 13 million.
The company has established a bold name when it comes to the contribution to public
exchequer. It has paid massive amounts in taxes that include local taxes, federal excise duties
as well foreign exchange savings that amount to 100s of billions. For example, in the fiscal year
of 2017-2018, it paid 0.82% of total estimated tax revenues.
The current macroeconomic factors have posed several challenges for the industry due to
currency devaluation, increasing interest rates, increasing manufacturing costs due to inflation,
new entry as well as political constraints. Many used vehicles are being imported which is a
major factor hindering the growth of the industry. There have been positive factors as well that
include GDP growth, law and order and improvements in the energy sector. CPEC has resulted
in increased development activities which has resulted in overall growth and improvements in
infrastructure.

STATE OF COMPETITION
The market structure of Automotive industry in Pakistan was considered as Oligopoly as there
were only 3 leading automakers in Pakistan namely: Toyota Indus, Honda Atlas and Pak Suzuki.
But with the new entrants in the market such as KIA, BMW, United etc. there seems to be high
competition in the Automotive industry in Pakistan.
Toyota Indus, one of the leading car manufacturers started assembling vehicles in Pakistan in
1989 in collaboration with some firms of House of Habib, Toyota Tsusho Corporation of Japan
and Toyota Motor Corporation. According to Pakistan Automotive Manufacturers Association,
Toyota is the top-selling sedan company in Pakistan. Toyota Indus in Pakistan assembles cars
with horse power of 1300cc and higher and provides variety of cars with different models like

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Toyota Corolla, Toyota Prius, Toyota Revo, Toyota Fortuner etc. The price of Cars starts from
PKR 2 million and exceeds PKR 10 million.
Atlas Honda came into being in 1992 after the collaboration of Atlas Group and Honda Motor
Company Limited Japan. Among the range of cars Honda Car sells, Honda Civic is the most
popular and luxurious car in Pakistan. The cars that Atlas Honda assembles in Pakistan are
Honda Accord, Honda City, Honda Civic, Honda BR-V etc. and range from PKR 2 million to PKR 6
million.
Whereas, Pak Suzuki offers cars that are very popular as well as affordable in Pakistan. The cars
lie in the price range of PKR 0.8 – 5 million. The most popular ones of PSMC are Suzuki Wagon R
and Suzuki Cultus. The current market share of PSMC is greater than 35% and these cars are
mostly preferred by lower-middle class and middle class because of the horse power and fuel
efficiency. Also, it is popular among the non-filers because of the laws laid by the federal
government. Also, motorbikes manufactured by Pak Suzuki are very popular in Pakistan. The
company has launched new models in motorbikes with better technology and more powerful
engines.
There are some of the new entrants in motorcycles manufacturing in Pakistan that are very
successful such as the Habib Motorcycles Pvt Ltd. It introduced 70cc model motorbike with a
six-month warranty. It is very successful and cheap which gained popularity. Some of the other
competitors are Unique motorcycle, Dawood Yamaha group etc. Dawood Yamaha Group is the
third most famous motorcycle manufacturer in Pakistan. The company has launched new
models powered with Euro 2 as well as 4-stroke. There are many Chinese companies which are
giving tough competition to the local manufacturers such as United Motorbikes.

SPECIFIC PRESSURE POINTS

 Taxation
 Currency Devaluation
 Inflation
 Import of used vehicles
 Costs of production

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ISSUES COMMON TO ALL INDUSTRIES
 Energy Crisis
Gas load shedding and high cost of furnace oil causes hindrance in Pakistan’s industrial
development, however, there is a high probability of oil and gas discovery in Pakistan as mining
as underway.
 High interest rates
Due to IMF pressure, Pakistan has one of the highest interest rates in the world which is
crowding the investment in private sector.
 Law and order
Foreign investment has been discouraged since long due to political instability, poor law and
order situation and deteriorating foreign relations with the neighboring countries such as India,
Afghanistan.
 Poor Governance and Corruption
Investors have been reluctant due the corruption and poor governance in Pakistan as
businesses are not facilitated which is a very strong barrier to the industrial development.
 Currency
PKR is facing immense pressure to due the trade deficit and declining foreign exchange reserves
which has increased the capital expenditure as all or most of the machinery is imported.

ISSUES UNIQUE TO AUTOMOBILE INDUSTRY

One of the most important issue that impacts the automobile industry in Pakistan is the policy
regarding import of cars. In the PPP government, a five-year policy was introduced. With the
increased demand of smaller cars in Pakistan, imported cars were gaining the market share
significantly due to several reasons. One of the reasons was the discontinuation of Suzuki Alto
and Daihatsu Cuore. In year 2012, the market share of imported cars with 1000 cc or less
engine was 45%. The share continues to increase rapidly and reached TO 72% in year 2014.
Also, the imported cars are of better quality and has better and advanced features which locally
manufactured cars does not have. Some argue that there is not enough market size in Pakistan,

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and some argue that customers prefer cheap cars as oppose to highly featured and advanced
cars.
There are many industries associated with Automotive industry like metal industry, rubber
industry, electronic appliances industry, plastic industry and many more. Any policy or factors
that affect any of these industries disrupts the whole supply chain. Skilled labor is hard to find
in Pakistan, like there are lack of automobile designers and engineers. Due to the lack of supply
of these workers, cost of labor is high.

PORTER’S 5 FORCES
1. Threat of entry
 No or very few legal barriers that protect the existing car manufacturers. Instead,
government has been encouraging other car manufacturers to Pakistan to compete in the
automotive industry.
 Very high entry and exit costs in terms of Capital requirement because automobile
manufacturing and assembly require massive investment when entering as well as the need
to recover this investment raises exit cost.
 The existing automobile companies that have been operating in Pakistan has a firm grip on
the market with years of research and operations. Also, these companies have captured and
divided the market very strongly. The consumers of existing automobile companies are
loyal.
 Achieving economies of scale in the automotive industry is relatively difficult of new
entrants (mostly small-scale companies) which means that high costs in the beginning.
 The local car manufacturers have also been protected by high import duties and taxes that
shield them from foreign entry in the market.
 New entrants may also face a problem in terms of distribution channels as the existing
players have firm grip on them.

According to the above factors, the treat of entry is somewhat moderate as the government
has been trying very hard and have been successful as well in bringing other automobile

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companies to Pakistan and locally manufacture. However, the existing companies are giving
tough time so moderate threat of entry.

2. Buyer Power
 Very large number of buyers due to increasing urbanization and mediocre public transport
because of which people prefer to keep personal cars. Also, increasing business activity has
led to an increasing number of commercial vehicles buyers.
 The size of orders for vehicles by the government and the corporate sector for its
employees have been on the rise as corporate activity has been increasing in Pakistan.
Government orders used to be huge in the past, however, the current government’s
austerity campaign has resulted in reduced order size. Nevertheless, order size is quite big.
 Automobile customers in Pakistan are highly price sensitive due to a large proportion being
middle class and Pak Suzuki targets the middle class.
 The ability to substitute is quite less as automobile manufacturers other than Pak Suzuki
target upper class population and imported vehicles have gotten expensive to the import
duties. Moreover, the switching costs are quite high due to the high taxes imposed as well
as capital loss that occurs at the time of switching.
 The information available to buyers is quite symmetric and very easy. This means that
buyers can easily make an informed and rational decision by comparing different
alternatives.
By analyzing the factors stated above, buyer power may range from weak to medium
mainly due to the inability to substitute.

3. Supplier Power
 The number of suppliers has been on the rise due to the government efforts as more and
more businesses have been entering the automobile supplies market.
 Majority of distributors and suppliers are medium scaled except for few that have created
monopolies in the region. A very good example is the Baluchistan province where there are
only two distributors and a handful of suppliers.

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 The services that suppliers provide are not unique, so substitution is quite easy, however,
the cost of changing the suppliers is quite high due to the extensive amount of capital
involved.
 There may be no or a very mild threat of forward integration by suppliers.
Supplier power seems to be weak due to the factors stated above.

4. Threat of Substitutes
 There a quite a lot of substitutes available such as public transport (Bus, Trains, auto etc.),
motorcycles and recently the cab services that have been on the rise such as UBER and
CAREEM. In case of commercial vehicle such as transport trucks and agricultural tractors,
the availability of substitutes is low.
 The propensity to substitute is low to medium in Pakistan due the status quo.
 Currently, the price performance of substitutes is very poor except for UBER and CAREEM
due to abysmal condition of public transport. However, the current government has been
investing a lot in the Transport sector which may improve the performance.
 Alternative transport mostly cost way less than personal vehicle, therefore very low
switching costs.
Currently, the threat of substitutes seems weak but in the future it may become strong.

5. Competitive Rivalry
 Few competitors currently in Pakistan, however, new companies have been entering which
drastically impact the number of competitors.
 The level of diversity between competitors is moderate as the type of product they offer
differs very less.
 The difference in quality is high if Pak Suzuki, Honda and Toyota are compared.
 The industry is one of the fastest growing industries in Pakistan. If industry concentration is
considered, Pak Suzuki hold the most share of the market followed by Toyota and Honda.
 Customer loyalty is high.

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 High exit costs due to massive capital investments and difficulty of recovery at the time of
exit which poses barriers to exit.
After analyzing the factors related, it seems that the competitive rivalry is very strong as the
leading players have been striving to achieve greater market share.

PEST

1. Political
 High duty on imported cars as well as imported car parts and machinery. There is also a
limit on number of parts to be imported.
 Oil prices and exchange rates fluctuates more often in Pakistan that effects demand and
supply. Also, this causes difficulty for the manufacturers to do future projections and
may lead to demand and supply mismatch.
 Pakistan Automotive Manufacturers Association has laid down some rules establishing
certain standards of the cars that matches the international standards like the
installation of ABS systems, seat belts and airbags.
 Insurance policy associated with motor vehicles and regulations by the federal
government on affiliation with foreign companies.

2. Economic
 Inflation has caused automobile manufacturers to increase car prices in Pakistan.
 The depreciating currency of Pakistan has increased the cost of imported goods and
as most of the car parts are imported, there cost of manufacturing has increased.
 Depreciating currency means increase in oil prices for Pakistan. Also, internationally
Oil prices has increased.
 Change in income level in overall change in car consumption. Also, it leads to shift in
the type of cars people consume.
 Change in interest rates affects car prices and it affects the demand from those
people as well who buy car on loan.
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 3. Social
 Poor public transport in Pakistan which encourage families to have cars.
 The type of car a person has reflects his/her taste, family size, as well as income
level.
 Youngsters tend to have a desire for customized cars.

4. Technological
 In many countries like USA, Japan etc., electronically controlled cars have been
introduced but in Pakistan, this advancement has yet to come.
 Hybrid cars in Pakistan was introduced by Toyota Indus, but Honda Atlas and Pak Suzuki
is producing conventional cars.
 Eco-powered cars have been introduced in the market.
 Sales has increased rapidly due to these technological advancements.

SWOT ANALYSIS

1. Strengths
 Pak Suzuki has the highest market share in the automobile industry. It produces and
manufactures locally which decreases its cost of production which results in low price
vehicles for the customers.
 It produces small cars as well as big cars. Small cars include cars with 800cc and 1000cc
horse power which the competitors are not providing. Hence the target segment of Pak
Suzuki is middle class.
 Spare parts of Pak Suzuki’s vehicles are easily available at cheap rates.
 There is a good resale market of Pak Suzuki cars in Pakistan, hence people prefer buying
these cars.
 Pak Suzuki has strong supply chain system and the dealers have good reputation. Most
dealers have workshops in their showrooms which ensures good maintenance services.

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 Highly qualified and skilled staff of Pak Suzuki ensures customer satisfaction.

2. Weakness
 Disagreement on policies regarding imported vehicles that affects sales of local
manufacturers.
 Distribution channels are less as compare to the demand nationwide. Specially in sub-
urban areas, there lacks authorized distribution channels/showrooms.
 Design and look of the vehicles are outdated. Competitor’s vehicles are much more with
the trend and design and look of the vehicles are attractive and catchy.
 They are also outdated on new technology. They introduced Eco-mode in the cars much
late than its competitors. Also, hybrid cars are not launched yet locally when Toyota
Indus has introduced much before.
 Due to cost cutting in order to provide low price vehicles, there is less focus on the
safety of passengers e.g. many models do not have air bags installed.

3. Opportunities
 High import duty on vehicles which increases demand of locally manufactured vehicles.
 Progressive taxes on vehicles proportional to its horse power. This leads to people
buying low horse power cars which Pak Suzuki manufactures
 According to the income tax ordinance, Non-filers can only buy cars with horse power of
1300cc or below. This increases demand for cars produced by Pak Suzuki.
 Spare parts markets of Pak Suzuki vehicles exist globally.

 Public transport system in Pakistan is weak, hence vehicles of their own becomes a
necessity.

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4. Threats
 High import tariffs on spare parts and machinery used to manufacture and assemble
cars.
 Heavy taxes are levied on purchase of cars and using it as well.
 Devaluation of Pakistani currency has put burden on the producers, hence increase the
cost of production.
 Increase in interest rates and inflation rates causes serious problems for the industry.
 There is high competition from imported cars which are cheap, fuel efficient and
technologically advanced cars.
 Increased fuel prices and stringent government policies has negatively affected the
automobile industry in Pakistan.

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