Suzuki, with its new Cultus, is ready for new auto firms
Despite the complaints, company’s latest model has shown impressive sales figures
The localisation level of the new Cultus is just 30% compared to 80% of Suzuki Mehran. PHOTO: SUZUKI
KARACHI:
Are you among those Pakistanis who perceive locally-assembled vehicles to be too expensive?
You are not alone in having this opinion.
One simple reason for this is that complaints against local car makers are numerous and varied in nature.
Let’s take for instance the latest model launched by our beloved Pak Suzuki Motor Company, the largest selling car manufacturer in Pakistan with a dominating 54% market share.
Suzuki Cultus, a 1,000cc hatchback, was launched in the last week of April this year after a long hiatus. The old variant was ‘facelifted’, given a few upgrades, but the model stayed the same for over a decade and a half. So it was natural that Pakistanis were keenly awaiting the latest model and kept wondering what it would look like.
Pak Suzuki’s six-month profit up 39%, stands at Rs1.99b
The new Cultus, like its predecessor, is available in two variants and sees a major change in shape. But was the wait worth it?
Let’s come to the looks later. The price tag on the low-end variant, called the VXR, is Rs1.25 million. The VXL is priced at Rs1.391 million. Sounds steep?
Sales in the first 4 months
Yet the car managed a reasonable response in its first four months in the market. Since its launch in April, the company has sold 2,012 units in May, 1,768 units in June, 1,894 units in July and 1,776 units in August. This is an impressive start for any new model in Pakistan and this is why company officials say they are satisfied with the initial response.
But is the growth coming from Cultus’ own intrinsic value or customers’ desperation for a smaller car?
Analysts too, expect the car will continue its current sales pattern in the coming months despite the fact that it is much more expensive than its competitors. “Even if the Cultus maintains its current monthly sales, Pak Suzuki wouldn’t mind because it’s a high-margin car,” Taurus Securities analyst Hamdan Altaf told The Express Tribune. “The company is relying on margins rather than volumes.”
Loosely translated, it means that Pak Suzuki does not want to sell a lot of units. One vehicle earns it a good amount of profit, which can nullify the pressure even if it fails to sell the desired number of cars.
However, company officials vehemently deny that the company is making extraordinary money from the new Cultus.
“How can we make massive profits from a car which has just entered the market?” said a company official who requested not to be named. “With low sale volumes, we are trying to keep our margins as low as possible.”
With ‘low margins’ as quoted by the official, Pak Suzuki earned a profit of Rs1.99 billion in the first half (January to June) of calendar year 2017, up 38% compared with Rs1.44 billion in the same period of the previous year.
In comparison, the company posted a net income of Rs2.77 billion in 2016, down 53% compared with Rs5.84 billion in calendar 2015 bit it was due to the conclusion of Punjab taxi scheme that provided a massive order of 50,000 vehicles to the company.
The company official claimed that the features of two airbags and ABS brakes in VXL actually raise its cost of production. “These airbags are tested in Japan and this incurs a huge cost,” he maintained. Moreover, the localisation level of the new Cultus is just 30% compared to 80% of Suzuki Mehran - highest level in any car in Pakistan and rightly so.
Price range
High localisation content means the car is made up of more local parts which are cheaper.
Another weak point of Cultus, analysts say, is that its price range is close to Suzuki Swift’s, a 1,300cc hatchback, which has a much better performance. Swift DLX is available for Rs1.327 million while the same variant with a navigation option is priced at Rs1.375 million.
Despite all the criticism on high prices, when Cultus was launched in April 2017, the car has managed consistent sales, pointing to a growing market. Cheaper car financing options are also lending a helping hand to the company.
New car companies are setting up their plants in Pakistan after the new five-year auto policy 2016-21. Since new entrants are coming with duty incentives their cars will be cheaper compared to existing players, so the real competition is expected beyond 2019 when Korean companies launch their small cars.
Pakistan starts assembling Chinese passenger car
“Pak Suzuki would either need to expand its portfolio or reduce its prices from 2019 onwards to compete with Korean brands like Kia and Hyundai,” added Altaf.
Although Pak Suzuki failed to get similar tariff incentives like new entrants in auto policy, its officials say the company is ready for competition beyond 2019. “We are ready to compete with new entrants with our current portfolio,” the Pak Suzuki official said with confidence.
[poll id="1529"]
Published in The Express Tribune, September 16th, 2017.
Are you among those Pakistanis who perceive locally-assembled vehicles to be too expensive?
You are not alone in having this opinion.
One simple reason for this is that complaints against local car makers are numerous and varied in nature.
Let’s take for instance the latest model launched by our beloved Pak Suzuki Motor Company, the largest selling car manufacturer in Pakistan with a dominating 54% market share.
Suzuki Cultus, a 1,000cc hatchback, was launched in the last week of April this year after a long hiatus. The old variant was ‘facelifted’, given a few upgrades, but the model stayed the same for over a decade and a half. So it was natural that Pakistanis were keenly awaiting the latest model and kept wondering what it would look like.
Pak Suzuki’s six-month profit up 39%, stands at Rs1.99b
The new Cultus, like its predecessor, is available in two variants and sees a major change in shape. But was the wait worth it?
Let’s come to the looks later. The price tag on the low-end variant, called the VXR, is Rs1.25 million. The VXL is priced at Rs1.391 million. Sounds steep?
Sales in the first 4 months
Yet the car managed a reasonable response in its first four months in the market. Since its launch in April, the company has sold 2,012 units in May, 1,768 units in June, 1,894 units in July and 1,776 units in August. This is an impressive start for any new model in Pakistan and this is why company officials say they are satisfied with the initial response.
But is the growth coming from Cultus’ own intrinsic value or customers’ desperation for a smaller car?
Analysts too, expect the car will continue its current sales pattern in the coming months despite the fact that it is much more expensive than its competitors. “Even if the Cultus maintains its current monthly sales, Pak Suzuki wouldn’t mind because it’s a high-margin car,” Taurus Securities analyst Hamdan Altaf told The Express Tribune. “The company is relying on margins rather than volumes.”
Loosely translated, it means that Pak Suzuki does not want to sell a lot of units. One vehicle earns it a good amount of profit, which can nullify the pressure even if it fails to sell the desired number of cars.
However, company officials vehemently deny that the company is making extraordinary money from the new Cultus.
“How can we make massive profits from a car which has just entered the market?” said a company official who requested not to be named. “With low sale volumes, we are trying to keep our margins as low as possible.”
With ‘low margins’ as quoted by the official, Pak Suzuki earned a profit of Rs1.99 billion in the first half (January to June) of calendar year 2017, up 38% compared with Rs1.44 billion in the same period of the previous year.
In comparison, the company posted a net income of Rs2.77 billion in 2016, down 53% compared with Rs5.84 billion in calendar 2015 bit it was due to the conclusion of Punjab taxi scheme that provided a massive order of 50,000 vehicles to the company.
The company official claimed that the features of two airbags and ABS brakes in VXL actually raise its cost of production. “These airbags are tested in Japan and this incurs a huge cost,” he maintained. Moreover, the localisation level of the new Cultus is just 30% compared to 80% of Suzuki Mehran - highest level in any car in Pakistan and rightly so.
Price range
High localisation content means the car is made up of more local parts which are cheaper.
Another weak point of Cultus, analysts say, is that its price range is close to Suzuki Swift’s, a 1,300cc hatchback, which has a much better performance. Swift DLX is available for Rs1.327 million while the same variant with a navigation option is priced at Rs1.375 million.
Despite all the criticism on high prices, when Cultus was launched in April 2017, the car has managed consistent sales, pointing to a growing market. Cheaper car financing options are also lending a helping hand to the company.
New car companies are setting up their plants in Pakistan after the new five-year auto policy 2016-21. Since new entrants are coming with duty incentives their cars will be cheaper compared to existing players, so the real competition is expected beyond 2019 when Korean companies launch their small cars.
Pakistan starts assembling Chinese passenger car
“Pak Suzuki would either need to expand its portfolio or reduce its prices from 2019 onwards to compete with Korean brands like Kia and Hyundai,” added Altaf.
Although Pak Suzuki failed to get similar tariff incentives like new entrants in auto policy, its officials say the company is ready for competition beyond 2019. “We are ready to compete with new entrants with our current portfolio,” the Pak Suzuki official said with confidence.
[poll id="1529"]
Published in The Express Tribune, September 16th, 2017.