POST FORDIST OUTSOURCING; PAKISTAN
Nobody expected that the re-entry of a Korean auto assembler after more than a decade along with the well-established Lucky Group would change the dynamics of the local auto market that has been dominated by Japanese assemblers for over three decades.
Kia Sportage and Picanto can now be seen running side by side with Toyota, Honda and Suzuki vehicles. The Lucky Group’s auto sales figure for the first quarter of 2020-21 was Rs20.5 billion, markedly up from Rs3.84bn a year ago. Its operating profit in the same period was Rs1.54bn as opposed to an operating loss of Rs332 million in the same period of the preceding fiscal year. The Rs20bn Kia complex in Bin Qasim Industrial Park employs 1,400 people versus 450 last year.
Speaking to Dawn in a recent interview, Lucky Motor Corporation (LMC) CEO Asif Rizvi said his product strategy revolves around providing consumers with more and better choices. The company plans to introduce more vehicles, including advanced specification vehicles, superior customer experience and aggressive localisation, he said.
“The newest and third addition to our locally assembled range will be Kia Sorento, a mid-sized seven-seater SUV built for comfort on a car platform with a V6 3.5 litre 276 HP engine. It will be available in three variants. In addition, a fully revamped imported Carnival passenger vehicle is also being launched this month. We will start bookings in January 2021 and deliveries in February 2021,” he said.
LMC began its sales operations in the first quarter of 2019-20. Completely knocked down (CKD) kits had been ordered on a start-up basis as the company did not anticipate a huge number of bookings. But KMC was well-prepared in the first quarter of 2020-21 with ramped-up production and CKD kits.
‘The new entrant policy should not be extended beyond its stipulated date,’ says Lucky Motor Corp CEO Asif Rizvi
Still the company was unable to meet the unexpected response after the Covid-19 lockdown. Orders for CKD kits had been rationalised owing to the unpredictable post-pandemic scenario.
The bounce-back of approximately 20 per cent within two months of the lifting of lockdowns was higher than expected, Mr Rizvi said.
“The outlook for 2021 is very buoyant with a year-on-year expected growth of over 50pc. We are fully geared to take advantage of the expected rapid market growth. We will top it up with some phenomenal new products,” he said.
When asked as to who the main buyers of Kia Sportage are — as big growers from Punjab and Sindh still prefer Toyota Fortuner, Hilux and Revo — he said Kia’s SUV is making inroads into all segments, including the rural areas.
“The competitor’s products are not in the same category. Sportage is a compact SUV built on a passenger car platform for comfort. Others’ products are mid-sized SUV/pick-ups built on a truck platform and hence not quite comparable,” he explained.
It’s a general perception that Kia Sportage and Hyundai Tucson (launched by another new entrant Nishat Motors) are produced under one banner in South Korea. It means different models of one Korean auto group are pitted against each other in Pakistan.
But the LMC CEO insisted Kia Motor Company and Hyundai Motor Company are two independent entities and are listed separately on the Korea Stock Exchange. Sportage and Tucson are produced in separate factories and compete fiercely with each other even in Korea, he said.
“Kia products are fully capable of taking on the best mass-produced brands in Pakistan,” he said confidently.
As for introducing locally produced electric vehicles (EVs) or completely built-up unit (CBU) Kia EVs in Pakistan, Mr Rizvi said the government is aggressively working on introducing an EV policy. He expressed hope that concessions given for manufacturing EVs will augur well for the industry and bring in new technology.
“It is never too early to introduce a new technology. EVs have been around for some time. Their penetration even in developed countries has been slow with a wait-and-watch attitude from consumers as the infrastructure develops and battery life improves,” he said. Pakistani consumers will take some time before accepting EVs owing to a lack of charging infrastructure as well as constraints on battery charge for intercity travel. Sounding a note of caution, he said that EVs cost 30-40pc higher than cars with traditional fuel engines.
About rising car prices by Japanese assemblers despite the rupee’s recovery against the dollar — from Rs168.43 on August 27 to around Rs160 today — he said he is concerned about customers. They have seen three to four price hikes during the past year, he said. “We have not raised the prices since our launch over 15 months ago,” he added.
He said the impact of low localisation has been offset in part by the new entrant concessionary duties.
In the first phase, LMC’s priority has been to build customer confidence through a warranty of four years/100,00 kilometres through a network of 30 dealerships. “Profitability is a by-product of customer confidence and the resultant volume,” he said.
The current Automobile Policy 2016-21 has been successful as it has attracted eight active new entrants and over 20 new models of vehicles. The existing policy has also helped increase the installed capacity in the country from 250,000 units per year to approximately 450,000 units.
Mr Rizvi said the current auto policy envisaged a production of 350,000 units by the end of 2021. The current volume is 130,000 (cars and LCVs). It had risen to 330,000 in 2018, but dropped in 2020 due to additional government taxes, rupee devaluation and the pandemic. “The government must provide incentives to ensure growth in the sector known as the ‘mother of all industries’. It has a multiplier effect of eight for direct and indirect employment,” he said. The industry accounts for up to 4pc of all Federal Board of Revenue (FBR) revenues.
Mr Rizvi said LMC has recommended to the government that it should eliminate the federal excise duty (FED) of 2.5-7.5pc and additional customs duty of 7pc. It should also reduce the 5pc customs duty equitably in all existing import structures to grow the industry and fuel its expansion.
Under the existing auto policy, incentives given to new entrants will end on June 30, 2021. Under this policy, the installed capacity in the country has almost doubled and exceeds maximum demand by 40pc.
“The new entrant policy should not be extended beyond its stipulated date. The existing and new players, totalling more than 10, should be allowed to operate undeterred under a stable policy. Frequent changes in the policy lead to uncertainty and a concern in the minds of foreign partners,” the LMC CEO said.
When asked about the curbs on the import of used cars that have opened new avenues for new entrants, he said such imports were never allowed commercially and their large numbers in the past have been a result of misuse. “Even today, the legitimate import of used cars under the baggage and transfer of residence schemes is still going on,” he said.
Published in Dawn, The Business and Finance Weekly, December 7th, 2020
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