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Pak Suzuki Motor Company Limited

The war of high segment cars.
1. Abstract:
Suzuki Company needs to focus more positively on higher segment of the automobile
industry which is 1300CC to 1800CC cars. The company is doing well in low segment
(800cc to 1000cc) cars in which they have got the highest market share. Suzuki has
got the highest market share (62 percent market share), needs to think about high
segment seriously. One of the foreseeable events, the third phase is Global Era for
Pakistan automobile industry, this era starting from 2012 onwards in which the auto
industry will transform itself for the purpose of becoming a global player by
maximizing their value added production, in that specific area Pak Suzuki has no
specialties. With the start of Global Era Phase due to mass production level the
industry experts are anticipating to accomplish the huge scales which is supported by
the size of GDP of $210 Billion by 2012 and Per capita income reaching to $ 1,300.
Globalization and dynamic environment leads the auto industry towards the
development of skilled people, acquisitions, technological development,
advancement of Infrastructure and living conditions, all these things push the auto
industry to Produce fuel efficient, high standard and environment friendly vehicles,
and at the same time meeting or exceeding customer expectations. The consumer
still have a lot of concerns about quality, safety and after sale service along with
relatively less fuel efficient engine technologies and features of the cars are still the
growing challenges for the Pak Suzuki Motor Company Limited.
The major problem that the Suzuki Company currently facing is in the form of Suzuki
LIANA, which does not fulfill the customers needs and not able to sustain the market
it was made for. Although the company has continued its journey in higher segment,
recently company launched a new model Suzuki SWIFT in the market, and it looks
like an attractive move of the company in the 1300cc class. But still company has
done nothing to compete with HONDA and TOYOTA.
Key words: Pak Suzuki Motor Company (PSMC), Auto Industry Development Program
(AIDP), higher segment (1300cc to 2000cc cars), low segment (800cc to 1000cc cars),
EDB (engineering development board), PAMA (Pakistan Automotive Manufacturers
Association).
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2. History:
Pak Suzuki Motor Company Limited is a joint venture between Pakistan Automobile
Corporation and Suzuki Motor Corporation (SMC) - Japan. The Company was
incorporated as a public limited company in August 1983 and started commercial
operations in January 1984. Initially SMC got the market share of 12.5% and with the
passage of time increased to 73.09%. Pak Suzuki has annual production capacity of
150,000 and with largest manufacturing facilities, PSMC is considered to be the
biggest player in automobile business. The company has a huge product line which
includes cars, small vans, Cargo vans and Motorcycle. PSMC followed the aggressive
policy of Indigenization, The capability to manufacture a product independently
within a country instead of relying on foreign manufactures or suppliers. Suzuki
vehicles have a healthy local content up to 72%. It is because of strong support of
vendors.
PSMC has the Dealers network on a large scale consisting of 3S (Sales, Service and
Spare Parts) facilities across Pakistan. PSMC also involved in social responsibility in
which caring for the Environment Pak Suzuki was the first to introduce Factory fitted
CNG vehicles. PSMC always attempted to achieve a goal aggressively for the purpose
of developing a society by increasing industrialization and improving the quality of
life and living standard by creating job opportunities and with the combined efforts
of all the dealers, vendors and Pak Suzuki employees. The major automobile
companies in Pakistan have been set up as joint venture with foreign multinational
companies. Joint Ventures for Automotive Vehicles (See Exhibit: 1)
(Exhibit: 1)
Joint Ventures for Automotive Vehicles:
Company Joint Venture Product
Indus Motor Company Toyota, Japan and Daihatsu,
Japan
Toyota and Daihatsu Cuore
cars
Atlas Honda Ltd. Honda, Japan Honda Cars, Honda
Motorcycles
Pak Suzuki Suzuki, Japan Suzuki cars
Suzuki Motorcycle Pakistan
Ltd.
Suzuki, Japan Suzuki Motorcycles
Ghandara Nissan Nissan, Japan Cars and Truck
Dewan Farooq Motors Ltd. Kia and Hyundai, Korea Cars and LCVs
Raja Motor Co. Fiat, Italy Cars
Source: PAMA
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3. Suzukis product line;
SWIFT (1300cc), LIANA (1300 & 1600 cc), CULTUS (1000cc), ALTO (1000cc), MEHRAN
(800cc), APV (1500cc).
4. Suzukis Vision and Mission;
4.1 VISION:
Excellence in all respects.
4.2 MISSION:
Our mission to realize this vision is, to provide automobile of international quality at
competitive price, to improve skills of valued employees by imparting training and
inculcating in them a sense of participation, to achieve maximum indigenization and
promote Pakistan`s automobile vending industry. To make valuable contribution to
social development of Pakistan through development of industry in general and
automobile industry in particular.
5. Industry analysis;
Pakistan auto industry faces a Preparation Phase 1985-05 which was also called
deletion programs. In these programs formulation and implementation of
compulsory local content conditions was adopted. Functions of these programs were
on the basis of Industry Specific Deletion Programs (ISDPs) and Product Specific
Deletion Programs (PSDP). Under these programs assembler had an option to choose
components from a basket based on their individual values. The EDB had the
responsibility to check whether the targets are achieved by conducting audit and also
check the shortfalls of deletion targets.
The auto industry is going to face the Development Phase 2005-12 that phase
consist of developing different strategies to transform the industry into a new
competitive environment. In this phase the main focus of the government was to
facilitate the environment for the auto industry to enhance their production capacity
to achieve mass production. In this phase more focus was on the issues of human
resource development, R&D, technology acquisition, competitiveness, innovation,
creativity and investment rather than tariff management, although it remains one of
the valuable tools for policy makers. During the preparation phase, major role for the
assemblers was to transfer technologies, provide help and assistance for developing
the vendors, enhancing the management skills to fulfill market and consumer needs.
The import of reconditioned cars remained low because of high import duties. High
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import of used cars in the last 2 to 3 years was however, to bridge temporary
demand-supply gap. In 2006 was indeed a Systematic shift in the business
environment in the form of tariff rates. Assemblers was not forced to implement
local content conditions, they have got the choice of buying the vehicles components
at most competitive price, quality and improved supply chain. (See exhibit: 2)
(Exhibit: 2)
Import of Vehicles Tax Slabs:
Type of vehicle
(meant for
transport of
passengers)

Customs

Duty on Value
Assessed

(See Para
13below)

Sales

Income
Tax on Sales
Tax paid
value
Special Federal
Excise Duty on duty
paid value
Used vehicles (Not covered under
special regime)
From 1601 CC to 1800 CC (Other than Asian makes)
15.00% 5.00% 1.00% From 1601 CC to 1800 CC (Jeeps)
15.00% 5.00% 1.00% From 1801 CC and above
15.00% 5.00% 1.00%
New Cars (Regular import or under
aforesaid three schemes)
Up to 800 CC
50.00% 15.00% 5.00% 1.00%
From 801 CC to
1000 CC
55.00% 15.00% 5.00% 1.00%
From 1001 CC to
1300 CC
60.00% 15.00% 5.00% 1.00%
From 1301 CC to
1500 CC
60.00% 15.00% 5.00% 1.00%
Source: Import of Vehicles Taxpayers Facilitation Guide (FBR) table 3.

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One of the foreseeable events, the third phase is Global Era for Pakistan
automobile industry, this era starting from 2012 onwards in which the auto industry
will transform itself for the purpose of becoming a global player by maximizing their
value added production. The most important benefit auto industry has in the form of
established vendors, huge number of vendors; they have developed themselves
during the second phase. Now they are in a position to recognize the design and
technicalities require for manufacturing components in house or through other
vendors. As auto industry is going to become a global player, so the role of vendors is
very much important in the global supply chain, because industry experts are
expecting that many of the overseas assemblers outsource manufacturing of
components to them. With the start of Global Era Phase due to mass production
level the industry experts are anticipating to accomplish the huge scales which is
supported by the size of GDP of $210 Billion by 2012 and Per capita income reaching
to $ 1,300. Globalization and dynamic environment leads the auto industry towards
the development of skilled people, acquisitions, technological development,
advancement of Infrastructure and living conditions, all these things push the auto
industry to produce fuel efficient, high standard and environment friendly vehicles,
and at the same time meeting or exceeding customer expectations. The overseas
companies are now looking to export and manufacturing cars by using Pakistani
market as a regional hub. The consumers still have a lot of concerns about quality,
safety and after sale service along with relatively less fuel efficient engine
technologies and features of the cars are still the growing challenges for the local
automobile industry.
Pakistan auto sector operates on a large scale and they have got the investment of Rs
98 billion, and this sector contributed about Rs. 63 billion as indirect taxes. Auto
sector also creates lot employment opportunities as it employs about 192,000
people directly and around 1.2 million indirectly. Pakistan auto industry also playing
an important role in the development of an economy, as the sector paying
approximately Rs. 08 billion per year in the form of taxes and contributed more than
Rs 30 billion to countries GDP. Although the industry is going slowly but it has got the
high potential in the coming years. Pakistans total share of car and commercial
vehicles remains 0.37% of the world production during the year 2006-07. (See
exhibit: 3)


(Exhibit: 3)
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Installed Capacity of Cars and Light Commercial Vehicles (LCVs):
Organization Capacity Unit/Annum
Pak Suzuki Motor Co. Ltd, Karachi
Public Limited Company with 72.82%
shares and management held by
Suzuki Motor Corporation, Japan.
150,000
Indus Motor Co. Ltd, Karachi
Joint venture between Habib Group,
Pakistan,
Toyota Tsusho Corporation, Japan
(Toyota and Cuore
50,000
Honda Atlas Cars (Pak) Ltd, Lahore
Joint venture between Atlas Group
Pakistan and
Honda Motor Co. Japan.
20,000
Ghandhara Nissan Ltd
Technical cooperation agreement
with Nissan Motors, Japan.
6,000
Dewan Farooq Motors Ltd
Technical cooperation agreement
with Hyundai
Corporation, South Korea.
25,000
251,000
Source: PAMA (Updated to FY. 2007-2008)
6. Recent Developments in Automotive Industry;
Pak automotive industry has recently created system enhancement, technological
development and skills improvement on the basis of forward and backward
integration, and all these things provide help to the rest of technical and engineering
sector as well. Because local material is used in manufacturing, so industrys
backward integration for materials and toolings such as steel, aluminum, copper,
plastics & chemicals, rubber & glass and its forward linkages in the form of retail &
wholesale, dealerships & logistics, workshops & maintenance, filling stations, finance
& insurance, marketing, advertising and consultancy services and trade, it stand to
reason that all these things plays a vital role for the development of auto industry in
future as well. If we look at the other side of the picture, material prices are declining
in overseas market so companies can reduce per unit cost and increase profits.
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7. Government Reforms for Automotive Industry;
Now automotive industry is becoming a global thespian by achieving
competitiveness, critical mass production and contribution to Pakistan s GDP 5.6%
by 2012 through attracting domestic and foreign investment in the auto industry and
development of human resource through a well-constructed policy framework and
for the development of new innovative technology. Over next five years which are
offering many challenges and obstacles, important is being continuing the high
growth, achieving competitiveness, investment in compliance to safety and quality
management standards. The goals set by the government and automotive industry
together can only be achieved by inclusive policy development through which cross
sectional issues can be addressed. The government of Pakistan has initiated the
Automotive Industry development Program (AIDP) for the sake of address issues
including the predictability of auto production and stable tariff for the next five
years. The (AIDP) undertaken by the government for the development of the
automotive industry. The Engineer Development Board (EBD) has the authority for
the implementation of this program to boost car production capacity to half a million
units as well as attract the investment of US$ 3 Billion and reach the auto export
target of US$ 650 Million.
The low cost production issues to compete in international market, adopting new
global emerging trends and dynamics of fuel efficient and environment friendly
vehicles, and the contribution in GDP remain dominant in the policy environment. As
fuel prices increasing rapidly, demand to produce fuel efficient and hybrid cars are
also under the consideration. The role of foreign investors and their interest in the
automotive industry speaks about a lot of potential and growth opportunities for
production and export. Pakistan Automotive industry has positioned to become a
global choice for outsourcing and becoming the part of global supply chain.
Government of Pakistan had undertaken major initiatives in the form of National
Trade Corridor Improvement Program (NTCIP) that reduces inefficiencies like
reduction the cost of doing business, increasing economic growth and increasing
export competitions.

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8. Competition;
8.1 Indus Motors company Pakistan:
Indus Motors Company Pakistan production facilities are located at Port Bin Qasim
Industrial Zone near Karachi in an area of over 105 acres. Indus Motor Company s
plant is the only manufacturing site in the world where both Toyota and Daihatsu
brands manufactured. Huge investments are made to build its production facilities
based on state of art technology. To ensure high degree of productivity, Toyota
production systems are implemented. Indus Motors Company Toyota production line
includes six variants of the newly introduced Toyota Corolla, Toyota Hilux Single
Cabin 4x2 and versions of Daihatsu Cuore.
8.2 Toyota Corolla:
The Toyota Corolla has been achieving success as a strong brand science 1970 in
Pakistan when Toyota Corolla was not manufactured in Pakistan but at the import
basis this brand tremendously took place in the Pakistan automotive market. The
most famous series of Corolla are 1976, 1978, 1986 and the list of early series of the
models is still considered as powerful and memorable brands. Toyota Corolla
assembling progressive manufacturing and marketing in Pakistan since July 01, 1990.
Corolla brand has already established in Pakistan auto market. So there was no hard
struggle made to establish the brand.
Toyota Corolla is well standardizing product in the market and its current series is
1300cc XLI, GLI Cruisetronic in each of the product they provide state of the art
features, reliability and serviceability to make more loyal customers.
8.3 Honda:
Honda Cars Pakistan Limited is a joint venture between Honda Motor Company
Limited Japan and the Atlas Group of Companies Pakistan. The joint venture was
initiated on November 1992 and joint venture agreement was signed on August
1993. Science the commencement of production in 1994, the company has produced
and sold more than 150,000 cars until October 2008. The company also regularly
conducts service campaigns to facilitate customer s need for service. This has given
to customers absolute confidence in the product evident from the increasing sales
volume. It is the constant endeavor of the Honda Atlas Cars (Pakistan) Limited to
achieve No.1 customer satisfaction. Honda Atlas Cars (Pakistan) Limited is committed
to meet customer satisfaction and to provide good value of money.
Page 9 of 15

0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
U
n
i
t
s

i
n

T
h
o
u
s
a
n
d

production of cars:1300cc, 1000cc, 800cc
Units in Thousand
9. Increasing trends in higher segments;
After the disaster of September 11, 2001 increased in the home remittances has
resulted in increased liquidity in the market therefore, people started to invest in
cars. At that time growth in high capacity car s segment increases. It becomes easy
to purchase new cars due to cars loans provided by banks. In order to fulfill rising
demand the automotive production capacity increased. Because of that mass
production the domestic car engine technology lags years behind the world markets
and people were unable to get the benefits of new technology. (See exhibit: 4).
(Exhibit: 4)
Production of Cars:













Source: PAMA

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10. Problems of Suzuki in Higher Segment Cars;
Suzuki has more focused on price competitiveness in higher segment of cars rather
than quality and innovation. Suzuki has more than 50% share in low segment vehicles
but lacking far behind in higher segment cars. The development of highly skilled
human resource and partnership with venders, acquisition of technology and
infrastructure, incorporating the environment changes will drive the automotive
industry to produce high standard, fuel efficient and environment friendly vehicles in
the better price range along with satisfying the customer requirements and
expectations. The consumers concern on quality, safety and after sale services along
with relatively less sophisticated engine technologies and features are still the
growing challenges for the automotive industry of Pakistan, especially for Pak Suzuki
Motors Company Limited.
Major setbacks to Pak Suzuki Motors Company Limited (PSMC) was in the shape of
Suzuki LIANA and BALINO, which was not able to compete neck to neck competition
with its competitors, Honda city, Honda civic and Toyota corolla because of unable to
meet the customers expectations and could not grasp the market. But PSMC didnt
stop its journey there, and now Suzuki SWIFT has recently been launched in the
market, which seems to be an attractive offer for the auto market in 1300cc
segment, but still PSMC has nothing to compete with HONDA and TOYOTA. The
gaining advantages of loyal customers before starting production of Toyota Corolla
brand in Pakistan, they didnt need to much hard struggle to give awareness and
make customers because of strong brand loyalty perception. So if we are talking
about higher segment (1300cc to 2000cc) cars Toyota Corolla is the leader in Pakistan
followed by Honda and then Suzuki.
Now Suzuki is focusing upon production to meet the market demand in small 800cc
and 1000cc cars segment. The reason was deletion program is replaced by tariff
based program from year 2006 to encourage local automobile part manufacturers to
enhance their productivity and decrease in the price as there are incentives in term
of using local parts. As far as this is helpful in declining the price of cars but on the
other hand it cause serious problems in quality and innovation. Pak Suzuki has
greater advantage then Honda in this policy because the Suzuki has a perception of
low cost normal quality car by using local manufacturing auto parts. Suzuki has not
serious decline in its perception if it uses the local manufactured auto parts if Honda
uses local parts their perception of high quality could decline. So decline in
technology will destroy the customer s confidence on brands and consumer will shift
focus on imported vehicles.
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The concept of CNG (compressed natural gas) in Pakistan also raises the demand of
automobiles in the country because CNG is cheaper than petrol. Pakistan now
becomes the first country in the world who consumes the CNG in automobiles.
Suzuki lays its focus by serving the low segments by introducing CNG kits in cars but
on the other side now people became very conscious to buy the car even invest in
the car market and rapid growth in the consumer financing from banks and other
companies provide the opportunity to buy latest models having more innovative
features compare to international top brands as they also reflect the status symbol.
(See exhibit: 5)

(Exhibit: 5)
CARS (Number of units sold)
CARS: Number of units
sold
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
2011-
12
1300-1600cc (2000cc Diesel)
July'11-
Jun'12
Honda
Honda (civic) 11,998 6,513 5,762 4,662 5,908 6,365 4,977
Honda (city) 16,136 11,848 8,439 6,482 8,212 9,121 7,142
Honda Total: No. of units
sold
28,134 18,361 14,201 11,144 14,120 15,486 12,119
Toyota
Toyota Corolla (No. of units
sold)
30,527 35,762 33,640 26,760 43,510 41,111 46,207
Suzuki
Suzuki (Baleno) 3,173 0 0 0 0 0 0
Suzuki (Liana) 4,571 6,067 8,439 851 1,025 470 450
Suzuki (Swift) ~ ~ ~ ~ 2,353 4,080 7,040
Suzuki Total (No. of units
sold)
7,744 6,067 8,439 851 3,378 4,550 7,490
Grand Total 46,015 47,896 50,518 28,462 50,266 50,211 61,187
Source: PAMA


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(Exhibit: 6)
Source: PAMA
Pakistan automotive industry is not equipped to undertake research and
development due to relatively weak technical base and risk evasiveness of producers.
Technology acquisition costs vary with the type and extend of sophistication. Cutting
edge technology transfers are difficult and may be the major factor.
Toyota transfer technology directly to local venders for manufacturing parts.
Manufacturing facility is audited first to judge the potential of a local vendor before
permitting him to produce sample of the part for testing approval. Japan is ready to
provide technical assistance up to certain level, but still no adequate infrastructure
and skilled human resource has been developed to meet the desired standard. An
average of only 45% parts of various models has been permitted to be developing
locally by Toyota after their extensive test trail in Japan. Due to non-availability of
expensive quality control equipment, all safety components are imported. Highly
trained engineers and technicians are also sending to Toyota Behren Training Center
for further skills enhancement. Manufacturing knowhow is transferred directly to
local vendors as per their qualification and skills, whereas assembly and operational
knowhow is provided to Indus Motors Company.
Due to the increasing demand of automobile rapidly and non-availability of strong
competitors in local market, the company remains unable to meet the technological
assistance requirements of local vendors to the desired level. Still no adequate
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1300cc (No.of units sold)
Honda Total (no.of units sold)
Toyota (Corolla no.of units sold)
Suzuki Total (no of units sold)
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quality control standards are emphasizing to meet the required standards of the
automobiles. This has result in consistently deteriorated quality of the finish products
especially in Mehran, Bolan and Alto vehicles. The benefits achieved by Suzuki
include saving of foreign exchange through development of 65% parts locally. Local
industry is promoted and develops resulting in employment benefits and economic
boost as per Pakistan government policy but it results in lack of innovation and major
quality initiatives the Suzuki s product line that cause the failure of the cars in higher
segments.
Honda Motors Company Japan is getting only 5% parts manufactured locally, due to
non-implementation of government policy (AIDP) forcefully and avoid giving any
design and manufacturing knowhow to local vendor industry. They are opinion that
due to non-availability of research and development infrastructure, it is extremely
default for Honda to provide any manufacturing technology to Pakistan. Instead of
relying on local vendors, Honda has continued to improve their vehicle parts. It can
be a short term advantage for them but in the long run they are losing credibility in
local market through increased production cost, depreciation of currency value and
non-availability of local vendors for manufacturing their vehicle parts.
By the start of Global Era Phase the automotive industry is expected to achieve the
high scale of production level and supported by the size of GDP of US$ 210 Billion by
2012. Global flattening, information systems and development of technologies,
improvement of infrastructure and living conditions will drive the automotive
industry to produce high standard, fuel efficient and environment friendly vehicles in
a better price range and satisfying consumers expectations. It is a major challenge
for the local car assemblers to achieve the acceptability of vehicles in the global
market. They need to be more concern about these challenges. (See Exhibit: 7)








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Sales of Cars (Exhibit: 7)
CAR 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
1300-1600cc (2000cc Diesel) July'11-
Jun'12
Honda (Civic) 11,998 6,513 5,762 4,662 5,908 6,365 4,977
Honda (City) 16,136 11,848 8,439 6,482 8,212 9,121 7,142
Suzuki (Baleno) 3,173 0 0 0 0 0 0
Suzuki (Liana) 4,571 6,067 8,439 851 1,025 470 450
Suzuki (Swift) ~ ~ ~ ~ 2,353 4,080 7,040
Toyota (Corolla) 30,527 35,762 33,640 26,760 43,510 41,111 46,207
1000cc
Suzuki (Khyber/ Cultus) 21,390 29,837 27,563 9,198 12,658 11,428 13,693
Suzuki (Alto) 16,823 21,988 19,097 6,550 10,794 11,932 16,288
Hyundai (Santro Plus) 7,031 3,470 2,227 404 244 0 0
800c
Daihatsu (Cuore) 7,883 12,776 12,204 5,852 5,301 6,007 3,857
Suzuki (Mehran) 35,982 37,007 35,526 13,421 22,513 24,119 35,131
Suzuki (Bolan) 10,451 15,566 17,209 8,664 11,439 13,311 22,540
TOTAL CARS: 165,965 180,834 164,650 82,844 123,957 127,944 157,325
Source: PAMA
Market Shares for FY-Year 2011-2012 (Exhibit: 8);
CARS Units Sold (nos.) Market Share (%)
Suzuki 95,142 62%
Toyota 46,207 30%
Honda 12,119 8%
Hyundai 0 0%
Nissan 0 0%
Kia 0 0%
Total 153,468 100
Source: PAMA





Cars
Suzuki
Toyota
Honda
Hyundai
Nissan
Kia
Page 15 of 15

11. In future;
One of the foreseeable events, the third phase is Global Era for Pakistan
automobile industry, this era starting from 2012 onwards in which the auto industry
will transform itself for the purpose of becoming a global player by maximizing their
value added production. . With the start of Global Era Phase due to mass
production level the industry experts are anticipating to accomplish the huge scales
which is supported by the size of GDP of $210 Billion by 2012 and Per capita income
reaching to $ 1,300. Globalization and dynamic environment leads the auto industry
towards the development of skilled people, acquisitions, technological development,
advancement of Infrastructure and living conditions, all these things push the auto
industry to Produce fuel efficient, high standard and environment friendly vehicles,
and at the same time meeting or exceeding customer expectation. To fulfill the
above stated requirements it means more focus on product development,
technology, R&D, and innovations, Pak Suzuki lacks the expertise in all these areas,
so in order to earn huge profits in higher segments and to remain in competition
with Toyota and Honda, strategically Pak Suzuki has to think about it seriously.