AURORA: The automobile industry in Pakistan is in a static position, with passenger sales hovering around 118,000 units over the last couple of years. In fact, since 2006-07 when sales peaked at 180,000, there has been a downward trend with the exception of 2011-12. Why is this?
AZAM MIRZA: Firstly, the law and order situation has been precarious in the last five years, and this is a major reason why the industry has not grown, especially compared to 2006 and 2007, when volumes were quite high. Secondly, at that time, car financing accounted for 70% plus of sales, whereas in the last four to five years, this has dropped to about 20%. In the early 2000s, the banking sector witnessed mushroom growth and many banks were offering car financing facilities to their customers. But then later issues of non-compliance arose, with customers not paying their instalments on time and so the banks reversed their decision to aggressively pursue car financing. Now they are very particular about their evaluation about whether or not to give a loan. Interest rates have also increased; they are now around 10%, whereas in those days they were four to five percent. Thirdly, the middle class in Pakistan, which is the key segment for automobile sales, especially Suzukis and locally manufactured vehicles, is not growing.

A: Another reason often cited for the low volume of sales is the competition arising from the Government’s imported used cars policy. How significant has their impact been on the market?
AM: About 3,000 used cars are imported every month, mainly from Japan and 80% of them are touching our target market. Although these cars range from the 660cc up to the 4000-5000cc category, the majority of imports are within the 660 and the 1400 to 1600cc categories and this is damaging the local industry particularly.

A: One of the attractions of imported used cars is that they offer advanced features which locally assembled cars do not. In fact, if you compare a locally assembled car with exactly the same model sold abroad, the Pakistani cars don’t have the updated features. Why?
AM: The market size, due to the reasons we discussed earlier, is limited in Pakistan, therefore for car manufacturers to install these advanced features is not feasible; otherwise the cost becomes too high. The vehicles imported from Japan are loaded with accessories and they are the norm in the Japanese market. So yes, there are more features installed in an imported used car compared to the locally assembled vehicles.

A: Surely this is unfair to Pakistani drivers? Perhaps they can live without the fancy features, but what about basic safety features such as airbags?
AM: According to Government regulations, seat belts are mandatory in Pakistan, which is why all car assemblers have installed them. Airbags too are a safety feature but customers must be taught how to use them, otherwise they can be dangerous as well.

A: So if the Government were to make it mandatory to install airbags, then all cars assembled in Pakistan would have them?
AM: Absolutely. In 2011 the Government announced that all vehicles had to be Euro II compliant, and from June 2012 we converted all our models to comply with those specifications.

A: What does Euro II compliance involve?
AM: Basically emission control.

A: So it’s an environmental measure?
AM: Yes.

A: Was this why the Alto was discontinued?
AM: To a large extent, yes. But we have recently introduced the Wagon R, which is far newer in design.

A: There is speculation that the Wagon R might actually compete with the Cultus and cannibalise sales there?
AM: The Wagon R is a tallboy design concept; it is mainly focused on families, businessmen, housewives, working people; it is a practical usage vehicle. The Cultus is positioned towards corporate executives. But yes, when we launched the Wagon R, we also considered the possibility that it may enter the Cultus market segment. However, sales trends have shown that the Cultus has not been affected. In fact, the Wagon R has penetrated into the imported used car market; this is where the bulk of the 700 plus sales we generate every month are going.

A: How important is the dealership network to Pak Suzuki?
AM: Very important. This year Pak Suzuki’s share in the locally assembled market touched 56%. We have 81 dealers in our network and we are continuously increasing this number. We cover 33 cities and we are now focusing on Swat, upper KPK and interior Sindh, the reason being that wherever we sell, we have to provide after sales and spare part services. We want to be as close as possible to our customers. Our aim is that one dealership should be within a distance of 50 to 70 kilometres from the next one, so that even if a customer buys his car from one of the main cities and he lives in, for example, Mansehra, Nawabshah or Naushero Feroz, he will be able to benefit from after sales services wherever he lives.

A: How much do you invest in your dealerships in terms of training?
AM: Dealers are required to go through rigorous training. Every year we conduct two training programmes for dealer owners on aspects such as delegation of authority, operational management, HR development etc. We also have programmes for the dealers’ second generation. The good thing is that many dealers are bringing their second generation into the business and turning it into a family business. The tricks of the trade and the dynamics are changing and the second generation is giving far better results compared to the first generation in implementing Pak Suzuki policies in terms of customer care and response. Then we have training programmes for the sales managers and executives, the workshop managers, advisors and technicians and the support staff of the dealership.

A: How much investment is required to set up a dealership?
AM: It depends on the location. For example, in Karachi, land prices are skyrocketing and it is quite costly to establish a dealership there as compared to Rawalpindi. However, when it comes to the rural areas, where we are now focusing, it is not very expensive.

A: So the major expense in setting up the dealership is the price of the land?
AM: Yes.

A: Do you buy or rent the land?
AM: We prefer that the dealer buys it, so that his commitment is there.

A: Typically, in terms of plot size, how big are these dealerships?
AM: First we calculate the area’s potential in terms of sales and after sales. In terms of size, it ranges between 1,500 and 5,000 square yards, depending on the location. However, the parameters remain the same; every dealer has to ensure that Pak Suzuki policies are followed. Only the size varies according to the market size.

A: How many dealers do you have in Karachi?
AM: Eighteen.

A: Does Karachi account for the largest number of dealers across Pakistan?
AM: Yes. Karachi caters to the whole of Sindh and parts of Balochistan. Although we have three dealerships in Hyderabad, Hyderabad is not developing as expected; it’s going down day by day in terms of infrastructure. In Quetta we have two dealerships.

A: After Karachi, which is your next biggest market?
AM: We have 14 dealers in Lahore, followed by Rawalpindi and Islamabad. Lahore caters exclusively to Lahore. Many cities are coming up in Punjab; Bahalwalpur, DG Khan, Gujranwala, Gujrat, Multan, Narowal, Okara, Rahim Yar Khan, Sadiqabad, Sahiwal, Sialkot, Sargodha and Vihari. Their infrastructure is good; the roads are good, so people buy cars. It is difficult to establish dealerships in interior Sindh, there are many issues there, while in interior Punjab, there are many parties willing to develop a dealership business. Punjab accounts for about 55 to 60% of the market; Sindh is around 30% and KPK and Balochistan account for 10 to 15%.

A: Dealerships are therefore the backbone of your sales strategy?
AM: About 99% of our sales come from dealers. Customers come to us directly only in specific cases. For example, we supply the Government of Pakistan directly; recently we had an order for 50,000 taxis from the Punjab Government. However, our intent is that all sales should go through dealers, because it is at the dealership that customers can get the after sales service.

A: What vehicles is the Punjab Government buying?
AM: Bolan and Ravi pickups. The focus is towards employment generation in Punjab. The Bank of Punjab will be offering loans to selected applicants at competitive rates in order to buy these pickups.

A: How big a buyer is the Government of locally assembled cars?
AM: For Suzuki vehicles in particular, the Government accounts for 2,000 to 3,000 units per year.

A: How much of your total share do light commercial vehicles account for?
AM: Around 30%; the remaining 70% are cars.

A: Pak Suzuki seems to be concentrating on the mid-range market; why have you not looked at assembling higher end cars?
AM: Globally, Suzuki’s strength is in the small and middle income bracket cars, although we are also focusing towards aggressively entering the higher cc segments.

A: Pak Suzuki launched a certified used car exchange system about three years ago. How successful has that been?
AM: A huge success. When customers come to a dealership, the major issue is that they want to trade in their existing car in order to buy a new one and all our dealerships offer an exchange facility. We have an exclusive team who certify used cars, which means over 130 checkpoints in the car have been covered and when all are okay, we certify the vehicle, give it a warranty under the Pak Suzuki umbrella and put that vehicle on sale. This is a big and developing market. The major advantage is gaining the customer’s trust; when a certified used car is sold by a Suzuki dealership, customers are confident that the documents are in order, the vehicle complies with Pak Suzuki standards, the spare parts are genuine and it is under warranty. These are all major issues as far as the used car market is concerned.

A: How big is this market?
AM: It ranges between 300 and 400 vehicles per month. Whenever our stock increases, we hold certified used car galas, which are hugely successful. We display 120 to 130 vehicles and customers start coming in from eight in the morning and by the end of the day we are able to sell about 80% of these vehicles.

A: What prompted Pak Suzuki to enter the heavy bikes market?
AM: Suzuki heavy bikes are very popular worldwide. There is lot of buzz about them. A lot of retailers import used heavy bikes and we found that some of their customers were inclined towards the new Suzuki heavy bikes. Hayabusa – which is the world’s fastest bike, Intruder, Bandit and Inazuma; we have introduced four models from the 1300cc to the 250cc range. It is a very small market, but customers were demanding that Suzuki bring in these heavy bikes, so we are offering them as an option. It is not a mainstream business for us; we are responding to our customers’ requests. The good thing is that we are now receiving inquiries from Government departments like the army, the navy, the motorway police and the Sindh police, because they know that Pak Suzuki will provide after sales services. When technicians and spare parts are not available, it creates a big issue for heavy bike users.

A: How much do they cost?
AM: Between Rs 700,000 to Rs 2.4 million.

A: Who buys these heavy bikes?
AM: Big shots; especially children of politicians, landlords, bureaucrats. Lahore is our biggest market, followed by Karachi.

A: Coming back to automobiles, there is often criticism that the industry, after all these years, still wants protection against foreign competition. What are your views on this?
AM: Pakistan is a third world market and in Pakistan the resale value of a vehicle doesn’t drop as drastically as it does in countries like Australia, Japan, the UK and the US. In those countries the resale value drops drastically because there are plenty of options available and there is cutthroat competition in the market. Especially in Japan, when the resale value drops after two or three years, buyers purchase these vehicles and send them to Pakistan at very low prices where they compete with the locally manufactured vehicles, plus they are equipped with good features. We strongly believe that the Government should focus on creating positive competition among the car assemblers. If there is aggressive competition among local car manufacturers, customers will benefit. Pak Suzuki has an installed capacity of 150,000 units per annum, but we are only producing around 85,000 to 90,000 units, depending on demand. There is capacity but we need positive policies from the Government to support the local industry.

A: What would such positive policies be?
AM: They should not allow the import of used cars; import duties on CKD components should be relaxed and so should various other taxes.

A: In terms of deletion, where is the industry at now?
AM: In a Suzuki product, local components range from between 50 to 70%. So it has been successful and local development is very important for prices. It is mainly the high-tech components that are difficult to produce in Pakistan because of the volumes.

Azam Mirza was in conversation with Mariam Ali Baig.
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