KARACHI: The Korean assembler’s historic Rs1.5 million price cut has paid off, as the business made billions of rupees in a matter of days, despite generally dismal auto sales.
On April 29, Lucky Motor Corporation Ltd. (LMCL) dropped the price of the Kia Stonic from Rs6.280m to Rs4.767 million. This move allowed investors and customers with large sums of money to profit even after paying up to Rs500,000 for expedited delivery, referred to as “premium or on-money.” In order to control the demand and supply imbalance, the corporation must close reservations on May 3rd, despite the overwhelming reaction from customers.
Reports of various Stonic volumes booked by the LMCL’s dealers are causing a stir in the market. According to sources, the assembler would have gotten Rs2.8 billion if it had reserved 600 vehicles and paid in full. Rs1.4bn has been made, even with the half booking of Stonic at Rs2.35m.
With this enormous sum, the business will be able to finance the importation of Stonic’s completely knocked down (CKD) kits in the future, as well as possibly finance the clearing of a large advance booking for delivery of other cars from May to September.
For the import of CKD kits, assemblers typically open letters of credit (LCs) based on current and upcoming orders. The State Bank of Pakistan has also loosened the requirements for establishing Letters of Credit for components and accessories in recent months.
In addition, the high interest rates on the billions of rupees kept in banks could contribute to a respectable return. If the assemblers are unable to deliver the automobiles to the buyers within 60 days, they will be required to pay Kibor plus 2.
The sharp price drop, in the opinion of several auto industry experts, cannot be the result of a pricing war. The assembler is making money on this short-term plan or gamble.
They calculated the tax benefit after lowering the GST from 25 percent to 18 percent in this category or maintaining the ex-factory price below the Rs4 million barrier to avoid paying higher GST, based on their analysis of the Rs1.5 million cut in Stonic. Second, the tiny profit margin has been jeopardized by the assembler.
They said, “The price cut has not benefited the genuine buyers,” and that filthy rich customers, dealers, and investors have taken over the market.
“Just 20% of actual customers were able to secure a Stonic reservation, and the majority of them were observed scurrying around the showrooms to secure a reservation prior to the booking window closing,” they stated.
Customers now anticipate further price reductions from other assemblers, particularly from Indus Motor Company and Honda Atlas Cars Ltd., as a result of the trend started by LMCL. Nevertheless, these massive Japanese automakers have already ruled out lowering prices.
