As we embark on a new year, the dynamics of the auto industry have been a subject of recent discussion and analysis. In a recent dialogue with a prominent journalist, I shared insights derived from my two decades of experience in the field. This conversation sparked interest, leading to the publication of an article highlighting my analysis, particularly emphasizing a potential surge in demand, estimated at 350,000 units every five years due to population growth. In response to inquiries from friends seeking more details on this forecast, I’ve decided to delve deeper into the subject in this article.
Population pyramid chart
Understanding the trajectory of population growth is crucial, especially when considering its profound impact on future demand. A population pyramid chart illustrates the distribution of people across age groups, serving as a predictive tool for assessing future needs. Take Japan, for instance; their upward triangle pyramid in 1950 set them on an economic superstar path, where a youthful population played a pivotal role. Fast forward to today, Pakistan has a promising upward triangle, rather better than Japan’s, meaning a lot of young blood. With some smart economic moves, we stand at the threshold of significant opportunities.
Relevant age group
The age group that makes car purchasing decisions typically ranges from 25 to 55 years, which is predominantly male. Though women also buy cars, for the ease of explanation I’m limiting to the dominant car buying gender.
It can be different for different industries: for example, for mobile phones, the relevant age group could start from as low as 15 years, both male and female.
Identifying the size of the target consumer universe
Let’s break down the numbers: Currently, 12.3 million young men fall within the 20–24 year old age bracket in Pakistan. Over the next five years, as they transition into the car-buying age group of 25-60 years, a substantial market emerges. Leveraging data from Ipsos Consumer Book 2022, we find that 7% of the national population belongs to the affluent SEC-A category, which includes educated employed or self-employed middle-top executives and small to large scale business owners.
Consequently, out of the 860,000 young men in the 25-30-year age range within SEC-A, a conservative estimate suggests that 40% may seek new cars for their need to showcase social status, travel over larger geographical stretches and avoid weak public transport systems in urban centers. This culminates in a projected demand of 350,000 units over the next five years. Extending this projection to a decade unveils an additional demand of 380,000 units, potentially surpassing a million units by 2035.
Recognize different buying behaviors
Understanding the psyche of Generation Z is paramount, as Gen-Z encompasses those in the age brackets of 15-20 year-olds and 20-24 year-olds. They have a very pragmatic approach to finances and an emphasis on product value, as opposed to intangible brand allure. They’re all about bang for their buck and are quite different from earlier generations. Recognizing these nuances in attitude and buying behavior is fundamental for crafting effective marketing strategies tailored to this demographic.
Expectations for 2024
The annual demand for cars reached a commendable figure of 320,000 units in recent years. The automotive sector’s performance is intricately tied to prevailing interest rates, not merely due to the facilitation of car financing but also owing to its impact on overall industrial growth resulting from low-interest rates. Forecasts indicate an anticipated reduction in policy rates to 15% in the year 2024. This reduction, coupled with the pent-up demand from the preceding year, leads us to anticipate a robust resurgence in car sales, likely three months after the implementation of reduced interest rates.
Another critical determinant influencing car demand is the fluctuation in PKR parity against USD. The projection for the coming year suggests a moderate devaluation of the rupee.
In conclusion, while the intricate dance of interest rates, currency valuations, and market forces shapes the trajectory of automotive demand, my outlook for the second half of 2024 is optimistic. As a stakeholder in the auto industry, I remain cautiously optimistic, navigating through economic nuances and demographic shifts that paint a promising picture for the year ahead.