In a search for untapped car markets, Nissan is back in Pakistan.

1976 Datsun 120y, for sale near Islamabad, $1,500 ask

Nissan is entering Pakistan’s car market – again.  The company assembled cars in the country until the middle of the past decade. Nissan withdrew when carmageddon sent Pakistan’s auto business into a tailspin. Now, Nissan is back.

Nissan reactivated its old Pakistan partner Ghandhara Nissan Ltd, and it will start assembling Datsun-branded cars within the 2019 fiscal, Nissan said today.

At first glance, Pakistan is a rather uninteresting auto market. Less than 300,000 units change hands in the country per year. Look a little closer, and you’ll find one of the few remaining untapped growth markets for cars. With 208 million people living in the country, Pakistan’s population is around two thirds of the U.S., however, Pakistan is just the opposite of the over-saturated American market.

According to the last statistics (from 2010), there are only 18 motor vehicles per 1,000 inhabitants.  Why is car ownership so low? Money. According to a back-of-the-envelope number used in the auto business, car sales start revving up when the per capital GDP reaches $3,000. The World Bank says that Pakistan’s per capita GDP stood at $1,443 in 2015. In neighboring India, the per capita GDP was $1,709 at last count in 2015, and India’s auto market is beginning to stir, ever so slowly.

Investment into Pakistan’s auto market requires patience and foresight. Established carmakers usually keep dominating once the takes off, but it can take a while. Volkswagen and GM were early movers in China, and to this day, they maintain the largest shares of the by now enormous car market. For Volkswagen, it was a very long shot. The company signed a 25-year contract in 1984, and it took 20 years for the Chinese market to grow in earnest. In 2008, Chinese per capita GDP pierced the $3,000 mark, and a year later, China was the world’s largest auto market.

Pakistan’s auto market so far is firmly in Japanese hands. All but a few percent of the pie is divvied up between Honda, Toyota and Suzuki, with Suzuki grabbing the lion’s share. Last year, the government passed a law to attract foreign automakers. Imported new cars can incur customs rates between 60% and 80%. Build a car assembly plant in Pakistan, and suddenly, car “components in kit form (CKD)” can be imported for 15% or less for the first three years, and plant machinery is let in tax free.

Nissan did not say which car it will be making in Pakistan. There is a Renault Kwid-based Datsun, Redi-Go, made at a Renault-Nissan joint-venture plant near Chennai, in neighboring India, and it starts at $3,800. It should be a safe bet that the first Datsun assembled in Pakistan will be a localized version of the Redi-Go. As good as the bet may be, it does not automatically mean its the winning one.

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