BR Research Newsletter

Rough ride for Corolla

local assemblers equally. Instead, the decline in demand for Corolla is a result of INDUs complacency in face of this competition. The company failed to launch the much-anticipated new Corolla model even though the ones in market are said to have reached their maturity. Imran Patel at Global Securities added that FY12-FY13 brought Toyota face to face with the ultimate dilemma of auto assemblers in Pakistan: complains about declining product quality as the level of localization increases. Auto dealers backed this claim and argued that Toyotas niche lies among buyers of new cars, whose demand goes largely unaffected by government policy on imported used cars. Comparative analysis of imported cars and locally produced cars shows that in the past four years, demand for Corolla was not dented by imports; rather it was competition from locally assembled Honda cars that made the ride rough for INDU. Company sources lay the blame of this sharp divergence in Honda and Toyota sales on base effect from last year, given that Honda had halted production due to 2011 floods in Thailand. However, experts disagree: they attribute Hondas success to good strategy. The company timed the launch of its latest model to match the peaking of Corollas version, giving a boost to demand for both Honda Civic and City. The improved fuel efficiency of new Honda models dealt a double whammy to demand for Corolla, which had already taken a hit due to ban on factory-fitted CNG kits. Toyota Corolla is still the market leader; but its sales which had averaged 3.2 times those of Hondas Civic and City combined in FY11-112, now stand at 1.6 times of the latters tally. Analyst suggests that Indus Motorss complacency is partly explained by higher margins on Toyota Fortuner. Even so, it seems that the rough ride for the company flagship brand wont be over for another year, as the launch of the next model in Corolla series is not expected any time before end of 2014.

The share of the 1300cc and above segment in total car sales has leapt from 30 to 50 percent, recording 3.4 percent annual growth (on average) in the past five years, informed a BR Research article published on 25 September. That piece had highlighted that this segment has done well, even as total sales for locally assembled automobiles remained lack lustre in recent times. But a closer examination of the segment reveals that while Hondas Civic and City are raking in buyers, the category leader Toyota Corolla is losing steam fast. Deputy manager corporate sales at Toyota Central Motors, Farah Kazmi attributes the decline in sales to competition from used imported cars, coupled with weaker rupee and high inflation. However, research analysts such as Zoya Ahmed at BMA Capital argue that competition from imported cars is an overarching factor that affected all
3 | BR Research Newsletter | Friday, September 27, 2013