KARACHI: Amid lacklustre auto sales overall, the Korean assembler’s record Rs1.5 million price cut has worked, as the company earned billions in just a few days.

Lucky Motor Corporation Ltd (LMCL) reduced the price of Kia Stonic to Rs4.767 million from Rs6.280m on April 29, thus waking up cash-rich investors and consumers to make windfalls even after paying “premium or on-money” up to Rs500,000 for instant delivery. After a tremendous response from the consumers, the company has to close down the booking on May 3 to manage the demand and supply gap.

The market is abuzz with reports of different Stonic volumes booked by the LMCL’s dealers. Sources said that if the assembler booked 600 vehicles on full payment, it would have received Rs2.8bn. Even the partial booking of Stonic at Rs2.35m has brought in Rs1.4bn.

With this whopping amount, the company can finance its future imports of Stonic’s completely knocked down (CKD) kits and maybe for other vehicles to clear a huge advance booking for delivery from May to September.

Assemblers usually open letters of credit (LCs) for the import of CKD kits based on existing and future orders. In the last few months, the State Bank of Pakistan has also relaxed the opening of LCs for parts and accessories.

Besides, the billions of rupees parked in the banks may also help earn a handsome return due to high interest rates. However, the assemblers are bound to pay Kibor plus 2 to the buyers if they fail to deliver vehicles within 60 days.

Some auto market experts think the steep price reduction cannot be a price war. It is a short-term strategy or gamble played by the assembler, which is paying off.

Analysing the drop of Rs1.5m in Stonic, they said around Rs500,000 is the tax benefit after bringing down the GST from 25pc to 18pc in this category or keeping the ex-factory price below the Rs4m threshold to avoid attracting higher GST. Secondly, the assembler has compromised on the low-profit margin.

“The price cut has not benefited the genuine buyers,” they claimed, adding that investors, dealers and filthy rich consumers have taken over the market by storm.

“There are hardly 20pc genuine buyers who succeeded in getting the booking of Stonic while most of them had been seen reeling to get the booking at the showrooms before the closure of booking,” they added.

LMCL has set a trend in which consumers expect more price cuts from other assemblers, especially from Indus Motor Company and Honda Atlas Cars Ltd. Still, these Japanese auto giants have already ruled out any price reduction.

Published in Dawn, May 10th, 2024