A Long Road to a Faster Lane?

The recent drop in interest rates is proving to be a boon for the automobile and insurance sectors, writes Sadia Kamran

Last year, Pakistan faced its worst economic contraction in 68 years. This was largely due to the nationwide lockdown imposed in March to control the spread of Covid-19. The State Bank of Pakistan (SBP) then slashed its policy rate (the basic lending rate) by 6.25% in several stages (from March to June 2020) to the current level of seven percent, a move aimed at giving the economy a boost. With this slashing of interest rates, consumer financing became cheaper and instalments of auto loans decreased by almost 50%.

The SBP’s monetary policy rate forms the basis of all interest rates in the market. Hence, conventional banks have seen a significant decline in the auto financing rates they offer to customers. Islamic car financing has also become more economical as Islamic banks use the SBP’s basic interest rate to determine their profit or mark-up rates.

According to Aamir Kureshi, Head of Consumer, Rural and SME Banking, Habib Bank Limited (HBL), “the drop was welcomed by the auto financing sector after the surge in interest rates in 2019 to 14%. After charging a margin of four to six percent on the base rate, commercial banks were charging an overall rate of 18 to 20% per annum as the cost of mark-up payments. The drop in the base rate in 2020 has resulted in increased affordability for borrowers.”

Like all other sectors, the pandemic hit the auto sector badly, forcing it to record the worst sales in history in the first quarter of 2020; in April 2020, for the first time, the auto sector recorded zero sales in terms of passenger cars. Therefore, the interest rate reduction gave the sector a much needed boost and consumer financing experienced an increase of Rs 39.6 billion in the last quarter of 2020, with the major contribution coming from the auto financing sector (source: SBP Report 2020-21). This resulted in increased sales for the automobile sector, good news for the Pakistani economy given that the size of the auto financing market is Rs 238 billion and as Kureshi explains, “auto financing forms a significant part (38%) of the total consumer financing market. A testament to the growth experienced by auto financing is that one of the top two players of this sector, HBL, reported double digit growth in their auto financing business compared to the same period in 2019.” He adds that “the auto finance industry is reaping the rewards of the new monetary policy, with increased sales despite the rise in the cost of vehicles. With new players entering the market, we see a plethora of options in the form of SUVs with prices ranging from five to six million rupees.”

A similar view is expressed by Arshad Majeed, Group Head, Consumer Finance, Meezan Bank. “Following multiple cuts to the interest rate, the auto finance industry, including Islamic auto financing, witnessed a positive change as the cost of borrowing went down. In addition, customers who did not generally go for auto financing were more inclined to do so due to the affordable rates.”

The growth in customers led to an increased demand for different models of vehicles. According to PAMA (Pakistan Automotive Manufacturers Association), sales of 1300cc and above passenger cars jumped from 9,953 units in first quarter of 2020 to 16,736 units in January 2021.

As new entrants make their presence felt in the market, carmakers are facing intensified competition as consumer demand is shifting, helping Korean and Chinese makes such as Changan, Huyndai and Kia to gain traction. New, affordable models have also been introduced by local assemblers such as RAIL (Regal Automobile Industries), Hyundai Nishat Motors and Lucky Motors Pakistan.

“Pakistan’s middle and upper-middle income segments seem to prefer 1000cc to 1300cc cars,” says Majeed, while Kureshi notes that, “in the near future, market inclination will lean towards 1500cc turbo charged vehicles, especially mid-size SUVs, as many new players are entering this category.”

In terms of auto financing, Kureshi says that “more than 75% of all scheduled banks in Pakistan are offering auto finance facilities and the auto finance business has now become immense.”

HBL’s current auto financing service – HBL CarLoan – caters to all market segments. “We cross-sell to existing HBL customers as well as offer fleet financing to companies. This strategy enables us to meet the demand of our clients and helps us maintain a strong position in the auto financing sector.” He elaborates that “HBL CarLoan’s fixed rate offering protects clients from unusual changes in the monthly instalment plan, thus giving them peace of mind in their budgeting.”

Meezan Bank for their part are offering faster application processing and approvals to attract and maintain their large customer base. According to Majeed, “Meezan is leading the auto loan industry in Pakistan. We offer products and services geared to the different needs of our customers.”

The boost in auto financing has been a positive sign for the economy and as expected, it is having ripple effects. Any automobile financed through a bank is required to have insurance coverage, hence the insurance companies on the panel of a bank play a role in the pricing of car loans, as the insurance premium becomes a part of the monthly instalment. According to Majeed, “as per regulatory compliance, the asset (automobile) is comprehensively covered (under Takaful) by the insurance company which is recovered in the monthly instalments.”

The auto business is an important category of business for all insurance companies, irrespective of their size. “Auto insurance constitutes about 26% of all types of insurance,” says a representative from a leading insurance company. Hence, insurance companies are using their sales force to capitalise on this business opportunity.

Insurance companies earn through investing their clients’ premiums and therefore a contracting economy with low interest rates may not be a good sign. However, the boost in auto financing and auto sales has offered car insurance and Ijarah (Islamic car insurance) companies a greater volume of business, which is helping recover the reduced return.

“If similar trends prevail and the policy rate is kept in the same zone, the future looks positive for the auto financing industry,” says Kureshi.

The automobile, auto financing, and insurance sectors are now hopeful that this trend will continue in the next fiscal period and that the interest rate environment remains as hospitable as it is now.

Sadia Kamran is a freelance writer. sadiazam@yahoo.com

Moving to Euro 5 emission compliance is critical for Pakistan’s quality of life, yet the stakes may prove too high given the country's weak economy, argues Mazhar M. Chinoy.

The last time Pakistani companies invested in introducing fuel exhaust emission standards was eight years ago. The implementation was Euro 2 compliance with regard to petrol/diesel and engines in local production vehicles. At the time, not too many people noticed that Pakistan had finally taken this leap of faith nine years after the world had done so, and at a time when most of the developed world was moving into implementing Euro 6 emission standards. At least, there was now a palpable emission standards regime in the country!

Most Pakistanis believed (some still do) that Euro standards had something to do with engine power – quite a far-fetched idea. In reality, Euro standards are globally recognised legal requirements that seek to limit air pollutants released into the atmosphere. They set quantitative limits on the permissible amount of specific air pollutants that are allowed to be released from specific sources over specific timeframes. The objective is to achieve higher air quality standards and preserve human, animal and plant life.

European emission standards are the definitive standards that define such minimum limits imposed on exhaust emissions of new vehicles sold in the EU and EEA member states. Defined in a series of EU directives, they delineate the various phases in the introduction of progressively stricter emission standards. The ultimate standard is deemed Euro 7, which will be followed by the obsolescence of fossil fuel vehicles.

Even now, from a Pakistani perspective, Euro 2 standards do not sound all that bad. The technology reduced more carbon monoxide emissions over earlier Euro 1 limits, with reduced amounts of unburnt hydrocarbon and a restriction on nitrogen oxide emissions. Cleaner air to breathe is always critical for any country. According to the WHO, polluted air accounted for nine percent of deaths in Pakistan in 2017 and Pakistani megacities such as Lahore and Karachi regularly feature in the top five most polluted cities of the world.

It was in this perspective that the Government of Pakistan ordered an emissions upgrade. In June 2020, it ordained the switchover from Euro 2 straight to Euro 5 – the ultra-low sulphur fuel containing a maximum of 50 parts per million (98% lower Sulphur) and 80% lower Benzene levels – by August 2020 and January 2021 for petrol and diesel respectively.

The decision, which many still believe to have been abrupt and reflexive, will impact the domestic automobile and crude oil refining industries in the immediate term, but over the long haul, significantly improve urban air quality and bring the local industry closer to international standards. A variety of challenges stare the automobile and petroleum industries in the eye.

Production Upgrades

The introduction of Euro 5 will require the installation of expensive specialised Euro 5 compliant parts such as particulate filters and accessory equipment to meet the new emission standards. This will increase costs and raise retail prices for vehicles already priced dearly in the market. Experts believe it will be easier for new entrants in the industry to bring in Euro 5 compliant cars. It was no surprise then that Master Motors Changan’s Alsvin was introduced as the first ever Euro 5 compliant sedan in Pakistan.

Rerouting CKD Imports

Sooner rather than later, emission standards will require that Pakistani assemblers move their traditional imports away from countries such as Indonesia and Thailand (estimated at 40% of total CKD imports into Pakistan), as these countries are still following Euro 4 compliance. This indicates that imports will be directed to complaint (and expensive) countries like Japan, further raising costs and end prices of vehicles.

Refining Petroleum

This industry is expected to face the most challenges, both in terms of technology and finances. According to a State Bank of Pakistan Report, the local petroleum industry is “largely outdated” and will need to massively upgrade to bring it up to steam. The Report estimates, with some consternation, that building in refining upgrades to comply with Euro 5 standards is likely to cost upwards of one billion rupees and take up to three years. Thus far, PSO and NRL have proceeded with their Euro 5 upgrades, with Shell and Total pitching in with imports and sales at selected pumps. Local refineries supply some 60% of the diesel demand and as of yet, two petroleum oil refineries out of the total five in Pakistan have upgraded to Euro 5 technology. In August 2020, the government threatened to impose penalties on refineries failing to meet the Euro 5 standards, triggering a tussle with the industry that challenged the legality of such penalties. Still, with the pressure up, industry insiders confide that Pakistan imported the first Euro 5 cargo in late December and the second in early January.

Storage Conundrum

Independent storage vessels or tanks will have to be built at fuel stations around the country to ensure separate Euro 5 provisions, a daunting task when only PSO has some 3,500 pumps across Pakistan. Analysts believe this may lead to mixing of the EURO 5 and 2 variants in the interim and consumers may end up paying a premium for Euro 5 alone. Similar storage problems will be expected at ports where the fuel is unloaded from arriving ships.

Analysts mulling over the government directive for Euro 5 wonder if it is viable for a developing country reeling with a negative growth rate this year, coupled with heavy public and foreign debt and resource paucity, to aggressively implement emission standards. They note that Pakistan still had a large number of non-compliant cars, commercial vehicles, rickshaws and motorcycles on the road and there will therefore be no immediate reduction of CO2 emissions. On the flip side, Pakistan was over two decades behind most of the world in adopting emission standards and it is critical it does so, given the air degradation. But will this be seen as reason enough by all stakeholders to implement the standards?

Clearly, industry support is required and incentive mechanisms need to be worked out for both the automobile and petroleum industries to garner their support for a smooth transition. These include tax benefits or even breaks and subsidies to help the industry and offset price hikes. Properly managed, such incentive structures could jumpstart further investment and create employment. Pakistan could even seek input from countries like China and India that successfully made the transition.

In a nutshell, the move to Euro 5, well intended as it may be, is rife with pitfalls and is unlikely to garner immediate and distinct climate advantages for Pakistan. Furthermore, the cost of bridging the emission standards gap may be too high in the short to medium term for a country still some years away from coming to terms with its economic quagmire.

Mazhar M. Chinoy has led the marketing services function for a leading multinational automobile company and is currently a director at LUMS. mazharmchinoy@yahoo.com

Nasir Jamal examines how well-prepared Pakistan is for an EV revolution.

The future of cars in Pakistan, like elsewhere in the world, is electric. So the question is, how soon is this future? The government, which recently approved Pakistan’s first five-year Electric Vehicle (EV) Policy for cars, thinks it will be sooner rather than later. But will it?

EV technology has long been considered a game changer for the environment. In countries like Pakistan, where fossil fuel imports constitute a major burden on an already weak external account, the adoption of this technology can bring additional benefits by significantly cutting oil imports, given that the electricity costs of running an electric car is almost a third of that of fuel in a comparable ICV (Internal Combustion Vehicle) and almost a tenth of a gasoline-run version of a two or three-wheeler.

Despite these advantages, EV adoption is painfully slow across many countries and this is as true for developed economies such as the US and Europe as it is for developing nations like India, where governments have been trying to speed up EV adoption through policy interventions aimed at cutting emissions and forcing carmakers to shift to cleaner technology or by offering cash handouts and subsidised financing to buyers or giving attractive tax concessions to both.

“In Europe, EV penetration is less than five percent,” says Almas Hyder, Chairman of the Engineering Development Board (EDB), which designed the EV policy framework. “China remains the only outlier, because it has embraced the technology more rapidly than the rest of the world, with electric bikes and scooters laying the ground for EV market growth. Similarly, Finland and California are the other exceptions.”

Like the rest of the world, the adoption of EVs in Pakistan could be constrained by weak customer demand due to limitations in the technology, lack of charging infrastructure and more importantly, a 30 to 40% higher upfront cost in spite of the huge headroom for growth.

Hyder says that initially, demand for EVs will flow from households that require a second car for use. A second source of demand could come from a segment of the population who want to graduate from two-wheelers to small, affordable cars with minimum maintenance and running costs. He adds that EV adoption will go only so far unless the necessary infrastructure is made available across cities and on the highways.

The government, at the initiative of the Ministry of Climate Change, introduced a raft of incentives in June 2020 in the EV policy for two and three-wheelers, buses and trucks in order to encourage manufacturers to start local production. The government has excluded cars and SUVs owing to strong opposition from the three Japanese carmakers in Pakistan as well as from local auto parts manufacturers and drew up a separate framework for this segment in December. The policy will be part of the Automotive Development Policy (ADP) 2021-2026.

According to media reports, the EV policy aims to bring half a million electric motorcycles and rickshaws along with over 100,000 electric cars and 1,000 buses and trucks into Pakistan’s transportation system over the next five years. By 2030, the policy envisions that 30% of all new cars, big and small trucks, vans and jeeps, and 50% of all two, three and four-wheelers to be electric vehicles. By 2040, 90% of all vehicles on the roads will be EVs.

The EV policy for four-wheelers seeks to boost demand and make local assembly profitable. The duty structure on CKDs (Completely Knocked Down Kits) for non-EV parts is similar to those given in the ADP 2016-21, which imposes a duty of 25% on localised parts and 10% on parts not produced locally. Duty on EV parts such as motors and battery controls, which account for 40 to 60% of the cost of a car, have been slashed to one percent; in other words, duty on EV CKDs will be in the range of six to eight percent compared with 15 to 18% for ICVs. Smaller cars with battery capacity of 50kWh or below or light commercial vehicles with battery capacity of 150kWh have been given an additional concession, whereby the sales tax rate has been slashed to one percent from 17% (bigger EV cars will continue to attract the normal sales tax rate). In addition, importers of CBUs (Completely Built Units) will continue to pay 25% duty to keep their prices up, a step aimed at supporting local manufacturing and discouraging EV imports. The rate of duty will be halved to 12.5% on the import of 100 vehicles (in single batch).

To encourage investment in the charging infrastructure (the most important factor to speed up EV adoption) only one percent duty will be charged on the import of charging equipment. Furthermore, the power tariffs for charging stations will be lower than regular rates and the government plans to have fast DC charging stations in all the major cities and motorways.

According to Hyder, “the duty and tax structure for electric cars is kept lower in order to bring consumer prices down to the same levels as those for ICVs. Smaller cars with battery capacity of or below 50kWh have been given an additional incentive in the shape of a reduced sales tax rate in order to promote entry level, smaller cars of upto 1000cc engine capacity.”

However, the companies interested in launching electric cars in Pakistan do not agree. “The restrictions on battery capacity above 50kWh… is intentionally done to protect the (Japanese) car manufacturers from EV competition,” says Ahmed Jaudet Bilal, CEO, Premier Cement and Director Strategy, Sapphire Fibre.

Bilal is overseeing Sapphire’s project to bring electric cars to Pakistan in partnership with China’s BYD. “This is an average policy and a lot still needs to be done.” In his opinion, EV technology has evolved and bigger, better quality cars and SUVs can do up to 500 to 600 kilometers in one charge and the entry of such cars and SUVs could pose a serious threat to existing ICV players in the market.

The policy incentives are meant to support domestic assembly of EVs. Chinese EV players like BYD and SAIC (which brought the MG brand to Pakistan) are already expressing interest in Pakistan’s EV market and seriously thinking of building assembly plants here.

However, Bilal is not sure if the incentives in the EV policy will attract investment in local assembly. “It takes between $80 and 100 million to set up an EV assembly plant and investors don’t make this kind of decision on the basis of incentives alone.”

Syed Shabbir Uddin, Director, Master Changan Motors, agrees. “For petrol engine CBU cars, duty is charged according to engine capacity in the passenger car segment. The higher the capacity, the more the duty. In the CKD business of petrol cars, however, the government wants more cars to be locally assembled to generate more jobs and economic activity, which is why custom duties are set according to the type of car. For example, all passenger cars attract 30% duty regardless of engine capacity. Had this not been the case no carmaker would have come to Pakistan.” In his opinion, the same categorisation should be used for battery capacity and not limit battery size to 50kWh, which he says does not have any objective basis. “Why 50kWh? Why not 40kWh? Or 60kWh? We do not have charging stations in Pakistan, so a bigger battery will give a longer range. For the EV revolution to succeed in Pakistan, companies should be allowed to bring their best models in CKD with longer range batteries rather than shorter range batteries.”

Is Pakistan’s EV story one of promise? We will not have to wait long to find out.

Nasir Jamal is Chief Reporter, Dawn Lahore. nasirjamal65@gmail.com

Producing ‘Made in Pakistan’ batteries for electric cars may well represent a huge economic opportunity for the country. Anusha Zahid speaks to Naveed Nazir, CEO, Sabztek Inc. to find out more.

The Global Climate Risk Index, in their Annual Report 2020, have placed Pakistan fifth on the list of countries most vulnerable to climate change, because of its location which is prone to extreme weather events, particularly heavy rainfall during the monsoon season and flooding. Moreover, air pollution in Pakistan’s major cities remains poor throughout the year, especially in winter when it is aggravated by smog (now considered as a fifth season in Pakistan).

In a bid to curtail this pollution, the government has taken several measures, including their Clean Green Initiative (building on its global success of planting a billion trees, the target has now been set at 10 billion) along with the recent first Electric Vehicle (EV) Policy that aims to bring half a million electric motorcycles and rickshaws, along with over 100,000 electric cars, buses and trucks into the transportation system in the next five years. Since the transport sector is the biggest contributor to air pollution (43%), the goal is to have at least 30% of all vehicles running on electricity by 2030 and bring the oil import bill down by two million dollars annually.

Since the announcement of the EV policy, several new investors have been granted ‘Greenfield status’ and a total of $476 million will be invested by new entrants who will be given incentives to import and assemble CKD kits of EVs.

Sabztek Inc. (a Canadian electric mobility company) is now set to enter Pakistan with a promise to bring six billion dollars in FDI. However, unlike EV assemblers, Sabztek Inc. plan to produce lithium-ion cells and assemble them into battery packs (the battery is the single most expensive part of an EV, constituting 50% of the total cost) with the help of local partners. The company’s objectives are to effect a rapid transition to environmentally friendly mobility solutions in countries vulnerable to global warming.

With a seed investment of five million dollars from expats and Pakistani investors, Sabztek Inc. are currently procuring five acres of land, where by the second half of 2021 (with a further investment of about $250 million), the company will build a facility with approximately 2GWh/year production capacity, equivalent to 1.67 million 12V 100 Ah batteries per year, which will expand to 50+ GWh in the next few years. The company will manufacture EV battery packs with built-in management systems as well as batteries for electronic devices, storage batteries for renewable energy plants along with battery chargers and inverters.

According to Naveed Nazir, Pakistani-Canadian Founder and CEO, Sabztek Inc., “Lithium-ion cells are our primary product and they can be assembled in configurations suitable to any market. We will enter Pakistan through the established solar, wind and renewable energy storage market and as the EV market emerges, we will begin manufacturing batteries for them.” Nazir, whose educational background includes physics and electrical engineering, is also a serial entrepreneur and has worked for and established several start-ups; he also has experience working in management roles at 3Com and Intel Corporation, US.

As of now, the EV battery manufacturing space is dominated by Asia, where China’s Contemporary Amperex Technology (CATL), Japan’s Panasonic Corp and South Korea’s LG Chem are the leaders. Three Korean companies (LG, Samsung and SK) together control half the share of the EV battery manufacturing market in the world.

Pakistan presently imports lithium-ion batteries (LIBs) for indigenous manufacturing from China to fulfil its domestic renewable energy needs and does not produce them locally, because according to Nazir, the production of a lithium-ion cell is very capital intensive and requires proficiency in battery chemistries.

Although the demand for LIBs is low, Nazir believes this will increase in the coming years not just locally but internationally as well. “LIBs are expected to be the tightest in supply in the future, as the global numbers of on-road EVs ramps up from 25 million to 250 million units by 2050. Therefore, there is huge market potential to manufacture batteries locally and also participate in the global EV supply chain.”

LIBs have unique advantages for both mobility and storage. They offer an optimal storage solution because of their superior volumetric and gravimetric energy densities and longevity and are five times lighter and six times smaller than lead acid batteries. Although they are more expensive than lead acid batteries, the lifespan of a properly managed LIB exceeds 10 to 15 years. “We are planning to introduce our LIBs at competitive prices, with sealed lead gel (VRL) batteries and with quality and performance at par with international brands.”

With regard to the driving range of a LIB, Nazir says it depends on the size and type of battery used. This is a design choice for EV manufacturers, based on the motor power and battery size. “Tesla Motors offer a 500 miles range in the US on a single charge in their extended range models. For light vehicles designed for daily commute, I expect a range of 100 to 150 kilometres per charge.”

Despite the fact that the raw materials used in LIBs are available in Pakistan, they are not mined or locally refined and Sabztek Inc. are planning to work with the government to develop a local mining and refining industry. Nazir believes setting up a local supply chain for battery materials will eliminate dependence on imports, ensure long-term foreign exchange savings and provide opportunities to enter the global material’s supply chain. “This is an opportunity to create an entirely new industry in Pakistan, supported by a vibrant ecosystem of players in mining, mineral refining and material processing and thereby provide thousands of jobs for a significant segment of the population.”

He is confident that Sabztek Inc. will win major local EV OEMs and renewable energy dealers in Pakistan and will capture the expanding export market and going forward, Sabztek Inc. want to develop an R&D infrastructure in local universities in partnership with the government, as a sustainable LIB and EV R&D ecosystem will facilitate employment and provide high-quality manpower for Sabztek Inc. “R&D will help us identify emerging high-performance LIB variants, and enhance a battery’s capacity and life-cycle. Acquiring the technical expertise on the LIB recovery and recycling will further provide an edge for Pakistan.”

In Nazir’s opinion, the government should extend the relief provided to EV assemblers in the policy to local manufacturers of key components for EVs including batteries. “Assembling a car just requires ‘screwdrivers’ and the ability to follow well laid-out instructions. There are no incentives for local manufacturing from scratch. They have to pay regular import duties and taxes.” In this regard, he suggests that the government set up one-window operations such as service desks of major corporations as these portals can inform investors about services available from each ministry and become a single point to track progress. “A lack of such portals makes it very frustrating for a foreign company to get anything done,” he concludes.

By Anusha Zahid

Khalid Naseem highlights the complexities that go into a car purchasing decision.

A consumer’s buying decision making process is complex, and although the stages of the buying process remain the same for every product or service category, the emphasis placed or time spent in each stage differs. This happens because some products or services are low involvement purchases while others require high involvement. The rest lie anywhere on the spectrum between either extreme.

Cars are high involvement purchases as they involve money, personal image, safety and security of the family. The purchase is infrequent and therefore invokes high involvement and extensive research. The decision-makers obtain information from multiple channels and process it.

Fishbein and Ajzen’s Theory of Reasoned Actions (TRA) (see Figure 1) states that purchases for high involvement products or services start with two sets of beliefs: personal and normative. The personal beliefs create attitudes and the normative beliefs (formed by outside influences) affect subjective norms. A complex interaction of both sets of beliefs leads to purchase intentions.

In practice, both sets of beliefs interact with one another at all four stages of the buying process: Initial consideration, active evaluation, closure and post-purchase experience. This process is not linear but iterative. In the digital era, when information is abundant and updated in real-time, it is quite possible for consumers to reach the closure stage and then find new information that takes them back to the initial consideration stage and the process starts all over again.

With cars, the entire family gets involved in the decision-making process, as all family members are its users. Different family members assume diverse roles in the decision-making process. A family member can take on more than one or no role at all. Every family member has his or her own sets of internal and normative beliefs that influence the process at each stage. Conflicts on certain specifics, such as personal needs, utility and power among family members are inevitable. As it is hard for all of them to agree on everything, the car purchase decision is almost always accommodative rather than consensual. Car buying decisions have some unique dimensions: first or repeat purchase, new or used car, car type, local or imported, upgrade or same category, maintenance costs, resale value, a dealership’s ability to repair and financing rates and options.

Initial Consideration

The purchase process, as in other categories, starts with what triggers the need for a car. If it is a first purchase, they may include family commuting needs, affordability, value, safety, and security. Unlike Western markets, where people buy cars to meet individual needs, in Pakistan, family needs take precedence. Not surprisingly, we see more families than individuals enjoying the features in car ads, particularly for entry level cars, such as hatchbacks, subcompact and compact sedans. Personal beliefs influence first-time buying decisions more than normative beliefs. Rational factors such as quality, performance, value, technology, safety and security play a significant role in the type of car, new or used, and brand choice decisions. Normative beliefs influence decisions more for high-end, mid to full-size SUVs and compact to mid-size executive cars, where the buyer is motivated to make a statement of success rather than meeting rational needs. Since first-time car buyers do not have a frame of reference to compare with, factors like fuel economy, maintenance costs, technology and space play a lesser role in buying decisions. In the case of a repeat purchase, however, space, new technology, affordability, quality, performance, value and fuel efficiency take the front seat. A key decision point here is whether to upgrade or stay in the same category. Repeat buyers also use reliability, dealer service and resale value as key considerations and usually buy their next car after four to five years of buying their first car. Both first-time and repeat buyers usually consider between three to five brands at the initial stage.

Active Evaluation

At this point, consumers add or subtract brands or options as they evaluate what they want. Since a car is a high-ticket item, buyers make objective choices from the beginning. At every step, they are trying to ensure that the price divided by value equals less than one, meaning that they get the right or even more value for the amount of money they spend. The right mix of rational and emotional attributes positively contributes to the value. Both personal and normative beliefs based on the information they have collected play a significant role. Their beliefs about how each option performs on attributes, such as quality, performance, value, technology, safety and security, aesthetics, uniqueness, self-image and social status knock down some alternatives from further consideration and may draw their attention to those ignored earlier. Although online platforms have expanded their information sources to include social media, company websites, partner platforms and digital as well as traditional media, old-fashioned word of mouth is still the most trusted source of information. Reason? Credibility, because a car purchase puts a great deal of pressure on the wallet. However, the trend for younger influencers in the family, visiting online sources, and reading online product reviews is picking up.

Closure

Since a car purchase is mostly a family decision, the family reaches a purchase decision rather than makes it. This is because the process involves sequential steps. At each stage of the process, personal or normative beliefs narrow down the choice set (sometimes expanding it too, due to the availability of new information). The closing stage involves decisions regarding financing alternatives, the practicalities of the decision, the influence of brand image, credibility of the sources of information, colour and attitude of the sales staff. Consumers do their research on their own but validate their findings through dealers. Sometimes, more information from them is also welcome. Online bookings are not yet a common practice. Touching the car, feeling it, test driving it, coupled with the overall purchase experience is vital in closing the deal.

Post-Purchase Experience

The post-purchase experience is necessary for successful marketing. The dealerships’ ability to repair or service the car, regular reminders for regular check-ups and maintenance tips result in positive word of mouth and in buyers becoming brand advocates. More than half of the respondents who consider four to five brands recommend at least one brand to others, which is often different from the one they own. It is therefore important that lost customers are also engaged to stay profitable.

In cars, brand loyalty is low, given that the buyer’s initial consideration-set starts with four or five brands. With more information flowing in, this could increase at later stages of the process. It means that car marketing companies should re-look at their loyalty programmes and build more customer engagement. Every lost customer is an opportunity to bring in another one through advocacy. Given that car purchasing is a complex decision, the odds are high that the car a customer has purchased may not be the one he loves the most.

Khalid Naseem is Head of Strategy, Firebolt63. khalid.naseem@firebolt63.com

Pakistani automobile advertising needs to move away from the monotony of sameness and adopt more distinctive approaches, writes Sumaira Mirza.

Nowadays, I am in search of my first car and I have been scrolling through social media platforms in pursuit of the perfect one. A car that is not only aesthetically pleasing, but aces in performance, comfort, safety, space, price point and resale value; the list is endless. So many options to choose from, each with its own set of features, standards and appeal, only making the decision a demanding task, especially considering the fact that the local automobile industry does not offer many variants.

Making such a big decision, especially with such a hefty price tag, needs ample consideration and a cost-benefit analysis, which I intended to carry out. In my quest I came across numerous car adverts. Therefore, most of my free time was spent on looking at countless car ads on TV and social media platforms. What I saw was confusing to say the least. How can something so personal and permanent evoke such identically bland communication? All the ads were a sea of sameness; glitzy, with good looking models, driving on pristine roads and an upbeat track playing in the background. Visually, they hit all the right points, yet they were all unforgettable. As an advertiser and a potential buyer, I wondered, why?

Most of our ads essentially focus on the same thing – buying a car as a rite of passage, presented as a success story, focusing on the features and the brand. But is this enough to satisfy a buyer? Since most ads are similar, potential buyers are mostly able to recall the generic storyline rather than the brand that was advertised.

Nevertheless, commercials do have the influence and the power to convince the buyers to purchase a car. A study conducted by Thunder Bay Ventures (TBV) and The Futures Company highlighted the fact that TV is still the top advertising platform utilised by the automobile industry. It further states that TV commercials are effective in moving potential buyers into the consideration phase; with an urban TV viewership of 2.1 hours a day, this represents a massive audience of potential buyers. Currently, Pakistan has 164.9 million mobile connections, which translates into a large set of people who readily have information available and are potential viewers for any kind of ad, even more so with the presence of various social media platforms, such as Facebook, Instagram, Twitter and YouTube.

The local automobile industry needs to tap into the potential of these viewers. They can do this by creating content that is relatable, informative, creative and has a greater recall than the content available currently. According to Lewis Williams, Chief Creative Officer, Burrell’s, “We see automobiles as extensions of ourselves, so style is really important.” He is absolutely correct – a car is a reflection of ourselves, which is why the international car advertising sector builds on this narrative, and in doing so has delivered some persuasive and wonderful stories that manage to compel our attention and communicate effectively.

One of the most noteworthy car ads in history was produced by Volkswagen (VW) through its simplicity and honesty. During a time of glamorous and dazzling ads, VW stood out with a simple tagline of ‘Think Small’ (created by Bill Bernbach). It was hailed as the greatest ad and kick-started the creative revolution.

When it comes to Toyota, their advertising efforts show how major companies are adjusting their marketing tactics as demographics shift. Toyota’s Camry currently has eight ads and each one of them is aimed at a different demographic model. Shalini Shankar, professor at Northwestern University and the author Advertising Diversity: Ad Agencies and the Creation of Asian American Consumers, believes that “it doesn’t hurt to have more stuff that acknowledges that the race is real…” The Camry campaign was developed jointly by a group of four ad agencies – a general agency and three that specialise in an ethnic group. They were Saatchi & Saatchi, Burrell Communications, Conill and interTrend – and they aimed their ads at Americans between the ages of 25 and 49 and built them around the theme of Sensations.

In a Camry commercial titled Captivating, a Chinese-American father picks up his daughter from baseball practice in a red Camry. Seated in the backseat, the daughter is focused on her tablet until her father turns Pandora on. Both their faces light up as the music starts playing along with the engine revving. The ad was created by interTrend, a Californian agency that specialises in marketing to Asian-Americans. Julia Huang, Chief Executive, interTrend, says, “Traditionally, Asian fathers show less emotion and affection toward their kids and we wanted to show that driving the Camry brought out a different side of an Asian dad.” Toyota’s efforts illustrate the amount of work that goes into creating a special and personalised appeal factor for their audience. Going the extra mile pays off in terms of gaining loyal customers.

A recent interesting ad was delivered by Audi. Starring Game of Thrones’ Maisie Williams, the commercial posits Audi’s all-electric e-tron as a remedy for car culture itself. Williams is seen pulling up to a city intersection blocked by dusty 1980s beaters. “Today’s high temperature is eight degrees above normal,” her radio informs us, followed by what sounds like the beginning of a news item about climate change. Williams then launches into a song from Frozen about letting things go. She is seen escaping through a forest of unattractive car-culture totems: bouncing low-riders, grease-monkey car mechanics, tyre shop tube men and macho muscle cars. Audi took special care to highlight the fact that it recognises all the toxic stuff about the American car culture and its negative impact on the planet and as a solution, offer their e-tron as clean and squeaky as a Disney princess, emphasising the importance of relevance (global warming).

Pakistan’s local automobile marketing sector could easily mirror the creativity of international automobile ads. Taking into consideration aspects such as emotion, relevance, creativity and delivery, agencies can play on the differentiation factor to market their brands and should consider the content of competing ads and then creating storylines that are different. Furthermore, in the evolution of automobile marketing, factors such as environmental appeal and consumer engagement are taking precedence. Our local automobile marketing sector can take a cue from these changing trends and incorporate them into their strategies. The idea behind this is to engage with different audience segments that may have varying reasons to make a purchase. For a country like Pakistan, where purchasing power, along with rising consumerism has increased, the market is ripe. Registered motor cars, jeeps and station wagons have grown by 5.3% in 2018.

In today’s competitive market, uniqueness and novelty are the order of the day. Poorly executed ideas can backfire and make a brand unforgettable. Rather than churning out the same run-of-the-mill ideas, creativity and distinctiveness need to be prioritised. So, give the keys to the creatives, turn off the GPS, and let them take us to places we have never been before... down roads unfamiliar and avenues unusual; the further off the beaten track the better. The work will improve and brands will be built.

Sumaira Mirza is a freelance writer.