As Pakistan aims for emerging-economy status, its automotive industry is already motoring along at a healthy clip. Annual passenger car sales recently topped 200,000 units for the first time, and all of the country’s automakers are planning production increases to satisfy brisk domestic demand.
New players are also flocking to this market of 200 million, lured by government incentives and the opportunity to tap a growing middle class. For now, there may be enough growth to go around, but these new faces — which include the likes of Renault of France and Kia Motors of South Korea — could threaten the dominance of Japanese makers.
Pakistan saw a record high of roughly 218,000 passenger cars sold in fiscal 2016, which ended last June. The leader was Pak Suzuki Motor, a subsidiary of Suzuki Motor, which landed an order from the eastern province of Punjab for 50,000 cars. The province’s government plans to use the vehicles as taxis as part of a job-creation program.
Indus Motor, a joint venture between Toyota Motor and local conglomerate House of Habib, is doing well with its mainstay Corolla, reporting that sales grew 11% on the year to 65,000 in fiscal 2016. “The market is so brisk that production can’t keep up,” said Indus Motor Vice Chairman Toshiya Azuma.
Azuma expects even more growth to come. “Demand in India, our next-door neighbor, is about 4 million cars [including commercial vehicles] a year, so annual sales of about 600,000 cars is well within reach in Pakistan.” The country has a population one-sixth that of India.
An alliance between Toyota Motor and Suzuki Motor could be a boon to both sides, helping the former gain ground in emerging markets such as India and giving the latter the engineering needed to compete in an increasingly high-tech industry.
Can’t go it alone
The two automakers said Wednesday they were discussing collaboration on environmental, safety and information technology.
Although Toyota President Akio Toyoda told a new conference that the idea of an alliance came together in just two business days after Suzuki Chairman Osamu Suzuki got the ball rolling, there is more to the story. Suzuki’s next partner had been the subject of speculation since August 2015, when the Japanese maker of economy cars ended a capital and business relationship with Germany’s Volkswagen over management conflicts.
Though Chairman Suzuki had said publicly that his company would look to remain independent going forward, another senior executive had acknowledged that collaboration was “necessary” in some fields. Even in India, a successful market for Suzuki, environmental regulations are growing tougher, making investment in technology like hybrid drive systems essential. Rising incomes have also stoked demand for higher-end vehicles in such countries.
Finding a big automaker ally was seen as essential for Suzuki to ensure a presence in self-driving cars. While a Toyota or a Volkswagen has the financial strength to counter the challenge posed by Google and other tech giants in this field — Toyota’s annual research and development budget comes to around 1 trillion yen ($9.59 billion) — Suzuki, which spent just 130 billion yen on R&D in the year ended March 31, hardly stands a chance alone.