The global automotive industry size in 2023 were valued at USD 4,070.19 billion and were predicted to hit almost USD 6,388.49 billion by 2031, according to international researchers. In today’s rapidly evolving business landscape, marked through the proliferation of emerging markets, stringent security regulations, the rapid advancement of new technologies, and shifting customer preferences, the automotive industry finds itself at the nexus of transformative change.
Innovative business models and digitalisation are reshaping traditional paradigms, ushering in a new era of disruption in the automotive industry. Four critical technological disruptions — mobility, electric vehicles, autonomous driving, and connected technologies — are poised to revolutionise the automotive landscape. While these disruptions are often viewed as independent phenomena, there’s a growing consensus among business leaders and industry experts that they are intricately interconnected, complementing, and reinforcing each other. The industry, overall, is perceived as primed and ready for substantial transformation.
In the developing countries like Pakistan, the car sales in March totaled 9,379 units, reflecting 3.0 per cent decline as against to the previous month and 1.0 per cent fall as against to the corresponding period last year, as per the Pakistan Automotive Manufacturers Association (PAMA) report.
Higher auto prices, record high interest rates, and a limited availability of auto financing, coupled with an overall fall in purchasing power, all contributed to the lackluster performance in the segment. The surge in imports of used cars following the removal of the regulatory duty last year also had a significant impact on local original equipment manufacturer sales.
According to the economic survey of Pakistan FY2023, with the exception of buses, there has been a significant fall in the productivity of all sectors of the automobile industry during July-March FY2023 as against the corresponding period in FY2022. The fall in growth was mainly attributed to the import restrictions on the automobile industry, considering automobiles as luxury items, with the aim of reducing the current account deficit. In May 2022, the State Bank of Pakistan (SBP) imposed restrictions on the automotive industry, requiring prior permission for the import of raw materials and crucial parts (CKDs) needed for local manufacturing of automobile parts.
The Government of Pakistan originally permitted the industry to operate at about 50 per cent of production capacity until foreign exchange constraints eased. However, with the deteriorating situation of Pakistan rupee exchange rate the restrictions on auto imports persisted, which in turn severely impacting the growth of the industry. As a result, the industry’s size almost halved resulting in substantial revenue loss for the government and significant job losses in society.
Statistics showed that the growth in the case of buses was an anomaly, primarily because of existing demand and available reserve stocks of parts and CKDs for buses. Next to buses, heavy commercial vehicles, mainly trucks, also experienced a decline of 39.8 per cent as demand diminished. The production and sales of passenger cars saw a significant decline during July-March FY2023, with production down by 47.3 per cent to 87,820 units and sales down by 50 per cent to 85,776 units, compared to 166,768 units and 172,612 units produced and sold during July-March FY2022, respectively. This decline in production and sales was observed across all segments of passenger cars, and was primarily attributed to import restrictions that resulted in intermittent non-production days, leading to a loss in growth for the industry. The farm tractor sector experienced a significant decline during the period with production and sales tend to decline by 46 per cent and 49 per cent, respectively. Sales amounted to 21,233 units, compared to 41,603 units sold in the corresponding period of the previous year. The two/three wheelers sector experienced a significant and unprecedented decline in production and sales, with a decrease of 33.3 percent and 33.0 percent, respectively.
Statistics released by the survey also showed that the automobile industry in Pakistan contributes almost 4 per cent to GDP and constitutes around 15 per cent of the LSM sector, making it a significant contributor to industrial output and capable of meeting domestic automobile demands.
Challenges
Rise in raw material prices: In the automotive industry the global competition is challenged through the increasing prices of essential raw materials like: steel, rubber, glass, and plastic. The fluctuating costs of these materials can impact production expenses and profitability for manufacturers.
Economic uncertainty: Economic uncertainly and instability can pose significant challenges for the automotive industry. Factors like changes in consumer income, disposable income, and overall economic health can impact consumer spending patterns and purchasing decisions. Instability in economic situations can also affect investment decisions and long-term planning for automotive companies.
Competitive market dynamics: The automotive industry operates in a highly competitive market environment, characterized through constant innovation and technological advancements. Today’s cars are equipped with advanced features like remote monitoring, driver assistance systems, and augmented reality displays. While these technologies improve the driving experience and safety, they also contribute to increased production costs, putting pressure on manufacturers to balance cost-effectiveness with product innovation.